Posted: Tue Mar 01, 2005 2:13 am Post subject: What if your mortgage loan is rejected?
If your loan is rejected, it is not the end of the road for you! You are sure to get a loan with some other lender.
Sometimes the process of getting a mortgage and thus purchasing a home is cut short by a rejection of your loan application. You need to first find out, why your loan was rejected.
According to the Federal law, The Equal Credit Opportunity Act, the lender is required to let you know in writing as to:
Why you were denied the credit, and
Based on which credit bureau's report was the decision taken, if so.
The reasons for the rejection and their solutions could be any one of the following:
Poor credit history
You need to first assess whether your credit history is actually poor or are there any mistakes in the credit report. If your credit is not good, you need to build it. But for this you need to wait at least for a year. You need to repay the outstanding debts at least partially. If you have an irregular payment trend, you need to make at least 12 on-time payments.
But if the report is incorrect, then you are entitled to a free copy of the report within 60 days and you must ask for it. Read it carefully and send a letter to the credit bureau complaining about the inaccurate data on your report and asking for a corrected copy.
Insufficient income
Actually the lender calculates on the debt-to-income ratio whether the borrower is worth being given a loan. If the pay stubs tell a sad story, then nothing much can be done. But it might so happen that you are about to get a raise some days after your loan application, or are going to change jobs for a more lucrative pay packet, this must be told to the lender. This would get you a better chance of qualifying.
Too much debt
You can pay off your debts and then apply once again. If the numbers are very close you can negotiate with your lender and convince him about your credit worthiness.
Insufficient funds
You may talk out with your lender to pay the closing costs or points and add the same to the loan balance. You can convince the lender to take back a second mortgage and lower your down payment. You can also opt
for lease purchase mortgages than directly applying for a loan. You may also accept a monetary gift from your relatives only if no repayment is expected. You can plan out your budget again and save money in the process. You may start a savings account to accumulate funds.
Self employed
You may not have the pay stubs to support you but the regular tax returns would help you secure a loan. The other option is to go for a no-income verification loan type. But the problem here is the high down payment and higher rates of interest involved.
House was rejected
Either the house title was not clear, that is there might have been a lien already attached. The appraisal value may be lower than the purchase price. The house might be in need of repairs as well. What you can do is go for the repairs and apply once again. It might be a wrong assessment on the part of the appraiser. In this case you can ask for a re-appraisal and then negotiate with the lender about the loan. If the appraisal value is less the loan- to-value ratio might exceed 80% and then you require private mortgage insurance. The interest rates required will be higher. Moreover such loans incur high risk to the lender.
You can either negotiate with the lender for a reduced amount, or can make an additional down payment to cover the difference between the purchase price and the appraised value.
Other strategies, you can opt for in this regard:
There are many Government funded loans like VA and RHS which require no down payment. You can look into the details of these. FHA loans also allow low down payment.
For poor credit there are sub-prime loans available. Low and moderate income families and minorities are helped by direct subsidies and relaxation in loan approval requirements.
All is not lost. You should not take the rejection to be a shattering of your dream, where there are problems there are solutions too. Some may be resolved faster and some may take time. You don't need to lose heart. You will get your loan and your home too. Just have the patience to get things moving in the right direction.
Jacques Vaarre-Lamoureux Guest
Posted: Wed Jun 07, 2006 10:31 pm Post subject: mortgage loan considerations
I am a Canadian citizen working in the US on a Visa. I am the VP of Sales of my employer and they are extending my Visa and applying for my Greencard. I will be moving and will be looking to purchase a home. I have been in the US for more than 2 years and have excellent credit so far except one credit card issue that was resolved, payed in full and closed. I have other creditors that show everything on time never late and in good standing. What are my options for a mortgage. You are the first source I try for information. I did own a home in Canada before moving to LA. Any information would help. Thank you
Posted: Wed Jun 07, 2006 10:56 pm Post subject: RE: mortgage options
Hi Jacques,
Welcome to our forums.
It feels good to hear that you have excellent scores and have always been regular on your payments. Actually, this is where most people lack and then end up by taking credit at higher interest rates. But hopefully you will be getting a mortgage at reasonable rates.
The industry has developed various mortgage programs for borrowers having different income levels. There are fixed rate loans as well as adjustable rate loan programs with various alternatives to choose from both of these categories.
If you wish to deal with stable payments throughout your loan period, then I shall suggest that you go for a fixed rate loan. Otherwise, if you feel confident of managing your mortgage amidst frequent rise in rates and hence monthly payments, then you can choose an adjustable rate mortgage.
For further information on various loan programs, please click here.
Sam
