Buying a house is one of the most significant investments you will make in life, and it can be an intimidating process. There are so many steps to take before you can even make an offer for your dream home—you have to get your finances in order and then apply for a mortgage loan.
What happens if your mortgage application doesn’t go your way? Getting turned down by a mortgage lender can be frustrating and disappointing. But you shouldn’t give up! One denied application doesn’t mean you have to give up homeownership. There are many ways to move forward.
Read on for the steps you need to take if your mortgage application is denied.
Step #1: Find Out Why
You cannot take effective action unless you know the reason for denial. Fortunately, by law, mortgage lenders are required to tell you why your application has been turned down. If it’s because of your credit score, they will tell you what credit reporting agency supplied the credit report.
Don’t hesitate to contact the lender to talk through what happened during the application process. This will help tremendously in figuring out what to do next.
Step #2: Correct the Issue
Here are some common reasons why mortgage applications are denied and how you can correct them:
Credit problems – If you have a low credit score, you can correct this by paying off your debts and reducing your monthly bill payments. At the end of the day, the mortgage lender just wants to make sure that you can pay your loan consistently, and it’s up to you to prove your capability to do so.
Debt-to-income ratio – Generally, mortgage lenders prefer a debt-to-income (DTI) ratio below 36%. One way to lower your DTI is to increase your income in some way. You can negotiate for an increase in your salary or start a small side business. You can also lower your debt by paying off loans ahead of schedule.
Location – Your choice of location may be beyond your financial capacity, and one way to get a mortgage loan approved is to choose an area with a lower cost of living. You can choose to settle down in a different neighborhood, or maybe in a different city.
Loan type – There are many different types of home loans you can apply for, depending on your annual income, if you’re buying a fixer-upper, or if you served in the military. You may be a better fit for a different loan product than the one you applied for.
Step #3: Apply Again
Mortgage applications can affect your credit score, but only in specific circumstances. The truth is, you can send as many mortgage applications as you want within a span of 2 weeks, and they will all count as just one “hit” on your credit score. So if one lender denies your application, your options are still open. Applying to multiple lenders will help you find the best interest rates possible.
When you send in a mortgage application to a lender, they will do a deep dive into all your finances to see if you will be a good borrower. If you get one rejection from just one lender, fear not—you can apply to others, and you can take simple steps to improve your financial situation.
If you need home loans in Sacramento, CA, Hawkins Home Loans is here for you. We are your online resource for a stress-free loan process, incredibly low rates, and highly experienced, fantastic service. We can help you find the best mortgage to fit your needs. Contact our experts today!