Mortgage application denied? Here’s how to avoid it

dots overlay
Mortgage application denied? Here’s how to avoid it Mortgages VIEW BEST MORTGAGES

According to an analysis carried out by LendingTree, almost one in every ten borrowers’ (8%) has their mortgage application denied. The study, which was conducted using data from the Home Mortgage Disclosure Act (HMDA) in 2018, found that the predominant reasons for mortgage application denial included:

  • Low debt-to-income ratio
  • Issues with collateral including home appraisal complications
  • Poor credit history
  • Incomplete mortgage applications
By Editorial Team | 29th January 2019
brand main banner

Applying for a mortgage doesn’t have to be a mortifying experience if you plan ahead, take your time, and consult your mortgage professional as you consider all your options. In essence, you can do a lot to avoid unnecessarily high mortgage rates, or avoid getting your mortgage application denied. 

How to avoid getting your mortgage application denied

A first-time buyer will usually have to disclose all debts, and verify their income, employment, assets, and housing history, among other things.

Borrowers will also have to:

  • Find the right bank to work with
  • Research and choose between the different loan products available such as FHA loans vs. conventional loans, and ARMs vs. fixed-rate mortgages
  • Keep track of current home mortgage rates, including interest rates and closing costs
  • Ensure that their credit report and credit score history is in order

With these requirements in mind, below are 7 useful tips to avoid getting your mortgage application denied.

There’s a lot to consider with a mortgage application (Picture: americanequity.com)
1. Avoid bankruptcy or foreclosure

One of the first and most critical tips on applying for a mortgage is to ensure that you have neither filed for bankruptcy nor had a foreclosure within the last seven to ten years. Additionally, any late mortgage payments on your credit score may disqualify you even if your credit score meets the minimum underwriting requirements.

2. Avoid applying without a strong credit standing

Even with a high credit score, you could still get your mortgage application denied. Some lenders may have additional requirements including having a credit report with at least three tradelines that each has a two-year minimum history on each. Also, make sure that your credit report doesn’t have inconsistencies or issues well in advance before making a home mortgage loan application. Some potential problems to keep an eye out for and avoid include:   

  • Errors in your credit score
  • Charge-offs or collections (e.g., medical collections)
  • Credit counseling (may not lower your credit score but mortgage lenders could still use it to deny a mortgage application)
3. Avoid applying without locking in a mortgage rate

If you don’t lock in the interest on your mortgage, you could end up getting your mortgage application denied. It’s also vital to secure the interest rate and loan terms in writing so that you are fully aware of the terms and conditions, including the period of validity within which you have to finalize the loan before the terms expire.

4. Avoid listing your property before refinancing

Mortgage lenders won’t feel secure if you unsuccessfully tried to get rid of your property or if you tried to refinance a mortgage on the same property a short while (six months or longer) before you applied for a mortgage. If you do so, you could get your mortgage application denied.

House key in home insurance broker agent's hand protection or in salesman person giving to buyer customer
Mortgage application take a lot of careful planning (Picture: iStock by Getty)
5. Avoid applying for a home you cannot afford

Find out the value of the house you can afford, based on your assets and income, long before you make a mortgage application. A secure and simple way to do this is to be pre-approved or pre-qualified before you choose a home. You could also seek evaluation from nontraditional credit lenders like New American Funding.

6. Avoid applying if your employment history is limited

Mortgage lenders want to know that you won’t have a problem paying your mortgage. Therefore, if you don’t have at least two years of continuous employment history within the same profession or occupation, then you should probably avoid making the application until you have such a record.

7. Avoid applying if you can’t prove good housing history

Mortgage lenders need to know if:

  • You have had any issues paying rent within the last 12-month period, or
  • You have verifiable personal assets that can cover at least two months of the proposed mortgage payments (including insurance and tax).

If your rent payment is irregular and if you do not have enough funds in your bank account to cover at least two months of mortgage payments, your mortgage application may be denied.

Conclusion

Although several factors can contribute to a mortgage application being denied, there is a lot that you can do to avoid such a situation. Studying how to apply for a mortgage, determining what you can afford, understanding your credit standing, and inspecting all the requirements a long time before submitting your mortgage loan application will ensure that your mortgage application is approved.

Written by
Editorial Team
Our Editorial Team is constantly watching for new and exciting services to report on. They aim to bring balanced, honest reviews to the site to give you the best comparisons and ensure you have the knowledge to choose the product right for you. Read more.
0 thoughts on “Mortgage application denied? Here’s how to avoid it

Leave a Reply

Your email address will not be published. Required fields are marked *. Your comment will have to be approved first and will not appear immediately.