A mortgage is also known as “claims on property” or “liens against property”. It is a debt instrument used as collateral of security of specific property, that borrower is obliged to pay back within the stipulated period. Various businesses and individuals use mortgages to purchase large real estate with the intention of not paying the entire purchase price of real estate upfront.
Sometimes your home loan is denied by the bank due to various reasons but this does not mean that you will never be able to own a home. There may be some possible reasons due to which a lender denies approving your loan. It becomes very important to understand the main reasons that don’t allow a lender to land Mortgage Loan so that you will be able to correct the problem and when applying for next time you will get your loan approved. We are going to share the top 5 reasons for a Mortgage Loan is denied.
1. Low Appraisal
If the appraisal of your property is lower than its purchase price then the loan-to-value ratio may become higher than the amount legally lend to approve.
Solution: the problem of property valuation issue is not that easy to work but can be resolved if taken proper decision. If you find out that the purchase price of the property is higher than the home value of your neighborhood so you should need to try negotiating again. On the other hand, if you have enough funds so it is recommended to make a large amount of down payment and accept a lower loan amount as it can solve your problem. Is not possible to shop lenders because all these things depend upon the market. So it is better either to renegotiate or to make a large down payment to get your loan approved.
2. Limited down payment and closing funds
After sharing about all the financial information with your lender, you will get to know about loan programs that how much you need to make a down payment, and how much amount of loan you will get. If you are not having sufficient funds on your own then there is a great chance that your loan will get denied.
Solution: To overcome this problem you can show a gift from a relative as the gift is expected for no repayment. What is it is very important to make sure that these should have proper paper trials and all of those document shows the money as a gift? Another option is to wait and make savings to save the necessary funds to make a down payment and get your loan amount approved.
3. Bad credit
Various researches found out that most people have no idea about their credit score. That is why it may become the main reason for your Mortgage Loan denial. So if you delay your payment of credit cards with a high balance you are making your situation worse and it may affect your credit score. Because of your negligence, your credit score is getting worse and then no lender will be able to give you a loan. Thus, it becomes the main reason for your Mortgage loan denial.
Solution: the solution to this problem is to improve your credit score that is made possible when you start preparing your outstanding balance at the proper time. This will help you to establish a good credit score and next time when applying for a loan your loan will surely get sanctioned.
4. No Credit
Many people purchase everything in cash and nothing to do with credit as they are of the views that if they can afford to pay it off why purchase anything on credit which is not right. You should have established credit to make sure that you can pay the loan amount. If you haven’t purchase anything on credit then how the lender can assess your credit score which possibly becomes the main reason for your loan denial.
Solution: For this purpose, you should start using a credit card and establish a good line of credit and start to make that repayment form like a car loan.
5. High debt-to-income
Before approving a Mortgage Loan lender always review your monthly pay and your monthly income relation or simply debt to Income ratio. One rule of thumb says that your mortgage payment should not be more than 28% of your monthly income. In the same way, your debt to Income in any case should not exceed 36%. In case your debt to income is higher than the desired rate, it, become the main reason for your Mortgage Loan denial.
Solution: With a good ability to pay credit and on-time mortgage payments you can convince your lender to consider your case and lend you the Mortgage Loan.