3 Common reasons why you can be denied for a mortgage loan

Prior to requesting for a mortgage, it is essential for you to think about the reasons why you might be declined for a loan. Though there are multiple reasons why a mortgage loan can be refused, there are three familiar reasons that happen most frequently. But the good news is these reasons can be sorted out. Following are 3 familiar reasons why you can be turned down for a mortgage and techniques to prevent them so that your loan request is accepted:

1) You have too much debt

When the average American household is carrying 8 credit cards amounting to almost $10,000 of credit card debt, it is not amazing that people are being refused for home loans. If you have huge credit card balances, student loans, car loans or any other kind of loan that sum up to a considerable amount of money, even though you have a good credit rating, you would have problems to qualify. Typically, lenders wouldn't risk lending money to an individual who spends more than 40% of their gross income on loans and monthly minimum payments for their credit cards. These expenses also incorporate the projected mortgage payment you're requesting for. If you have too much debt, pay it off prior to applying for a loan.

2) Inadequate down payment

Usually, lenders ask for a down payment of 20% on home mortgage loans. However, as home prices went up, they permitted buyers to make a lower down payment provided they purchase private mortgage insurance (PMI). Due to the troubled economic conditions, lenders have made the lending requirements stricter since borrowers with private mortgage insurance are making down payments of 3%-5%. If you don't have sufficient money to compensate for the necessary down payment, you should wait for some time and save some money. Always keep in mind that a bigger down payment suggests you have higher equity in your home and as a result of this, your monthly payments would be less. If you wait for some time, you can save more and it would benefit you in the end.

3) A poor credit score

A bad credit score can be a hindrance in becoming eligible for a loan and it also might ultimately cost you more. Even though you get a loan with a bad score, you would need to pay a higher interest rate since you're deemed as a more risky borrower. If your credit score is 720 or less, it would be a tough time for you to obtain a loan. Rather than being turned down or fined for a poor credit score, take your time to restore your score prior to going for a loan. You can better your score by making timely bill payments, reducing your credit balances and not bouncing any checks. Carrying a good credit score would help you get a low interest loan.

Try to solve these familiar problems prior to applying for a loan since this would help you get the loan that is most suitable for your needs. If you can pay off your debts, save money and restore your credit score, your odds of obtaining a home loan are quite high. Get ready to buy your dream home.

How to become approved for a mortgage loan

If you're trying to become approved for a mortgage, it might appear to be an intimidating task. However, it need not be so. You can take some initiative to better your possibilities of securing a mortgage loan. A little bit of homework is also required. The following steps would help you become approved for a mortgage loan:

1) Check your credit score

Examine your credit score and credit report. If you want to enhance your possibilities of becoming approved for a mortgage loan, then it is important to better your credit score. You can check your scores on the Internet without any fees and evaluate your credit report for any irregularities.

2) Improve your debt to income ratio

Try to reduce your debt to income ratio. If you can, pay off your credit card debts and other recurrent monthly expenses and try to raise your monthly income. If you have a feasible debt to income ratio, then you have higher chances to qualify.

3) Select the right house

Select the home that is right for your needs. Also check the condition of the house and its selling price. While buying a property, you must search for a home that is in average condition or better than that. The property has to be fit for the appraisal to be performed by the bank. Nowadays, banks and other lenders wouldn't sanction a mortgage if the condition of the house is below average. A feasible price for the home is also an important factor in obtaining a loan. The price must be equal to the market value or lower than that and it should be reasonable to your debt to income ratio.

4) Save money for your down payment

Try to save money for your down payments and closing costs. You can choose to make the minimum down payment. Nevertheless, the more the amount of down payment you make, the less risky you are to the bank or lender since they can accept you for a smaller amount of mortgage loan.

5) Shop around

Shop around for various mortgage lenders and brokers. Different lenders have different lending prerequisites and offers. Though one lender might not provide you a mortgage loan, another broker or lender might help you obtain an approval.

You must try to better your financial situation and credit score so that you can be approved for a loan at the most affordable rate.

Mortgages for people with poor credit rating

If you have a poor credit history, it means that your credit score is less than 640. But if you are looking for a home loan, to a mortgage lender, a poor credit rating may mean any one of the following –

• You may have filed bankruptcy

• It is quite likely that you have several missed payments to your credit.

• It can be any financial obligation that you failed to meet

• You may have defaulted on your previous auto or home loan

Mortgage lenders usually categorize borrowers in 2 ways –

• Prime mortgage borrowers
If your credit score is 640 or more than that, you fall in the category of prime borrowers. You will be entitled to favorable or lower mortgage rates. You need to have a flow of income that is steady.

• Subprime mortgage borrowers
Borrowers falling in this category are those having credit score less than 640. The interest rates applicable for subprime borrowers are usually very high.

FHA (Federal Housing Authority) loans
If your credit score isn't good, you can also opt for FHA loan. These are the home loans the Federal Housing Authority guarantees. Since the FHA (an agency under HUD or Housing and Urban Development Agency) guarantees these home loans, they are favorite of the banks. This is because the banks know that if the borrowers default, they will not have to incur the loss as it is guaranteed by the federal government.

In case of FHA loans, you don't need to make a down payment that is 10% to 20% as required in case of a prime loan, but you can make a down payment that is as low as 3.5%. In a nut shell, if you have a poor credit history, you can avail the FHA loans. Availing FHA loans requires that if you filed bankruptcy prior to applying for FHA loan, bankruptcy should have been discharged 2 years prior to it. You must have had a good credit payment history for at least 2 years prior to applying for the FHA loan.

Why are lenders giving in to loan modification requests?

Following recession that was triggered by the subprime mortgage crisis, the number of foreclosures and mortgage related delinquencies has escalated remarkably. Earlier lenders were too eager to foreclose on houses as homeowners fell behind on payments. However, as subprime mortgage crisis assumed a bigger proportion, lenders decided to approve loan modification requests. Lenders realized that the cost of foreclosing on a property is approximately USD$60,000 or 20% to 25% of the outstanding balance. In fact the legal fees can be USD$4,000.

As part of the Obama's Mortgage Bailout Program, many lenders have been getting incentives for modifying mortgages. In fact the Mortgage Bailout Programs that were introduced earlier did not provide incentive to lenders. As a result of which the programs were not so successful.

However, with the government announcing incentives for lenders, many lenders have agreed to approve loan modification requests. Moreover, many banks have a number of properties foreclosed already. So, the loss mitigation departments of the banks and lending institutions are modifying mortgages of borrowers so that the homeowners can enjoy better terms on their mortgages.

In case you are planning to modify your loan, you can take help of a legal professional. Lenders usually help homeowners in any one of the 3 ways –

• The rate of interest may be reduced
• The loan term may be extended
• Sometimes the total outstanding balance of your mortgage may be reduced.

However, in order to get approved for loan modification, you need to provide sufficient documentary evidence that you are facing financial hardship. If you sense that there is some irregularity in the mortgage that has been extended to you, you can opt for a forensic mortgage loan audit that will help you to find out irregularities in the mortgage that has been extended to you.

Forensic mortgage loan audit is usually performed by a group of legal professionals. The findings of the forensic mortgage loan audit get recorded in a report that is referred to as the forensic mortgage loan audit report.