I know it’s embarrassing to be denied a mortgage loan. All is not lost, understand why you were denied. Then you can improve the situation and re-apply.

First of all, when you are denied a mortgage loan, you should receive a denial letter. Pay attention to the reason for the denial. If the letter doesn’t make sense as to why you were denied, then request more information and be persistent!!

Here are a few common reasons mortgage loans are denied:

Supplying the wrong documents or giving the wrong documents Insufficient funds for closing costs or down payment Not enough income or haven’t worked at your current job long enough

Let me explain each of these:

Supplying the Wrong Documents or Missing Some Documents

Supplying these documents is very important. Supplying the documents is like showing them what’s in your underwear drawer. Whatever document they ask for, give it to them. Sometimes you feel like “they don’t have a right to know that,” yes they do. Would you lend your best friend hundreds of thousands of dollars without knowing if they could pay it back or if they are being truthful with you? Of course not! So get ready to show them these documents not matter how personal. Keep the originals, only give them copies.

Insufficient Funds for Closing Costs or Down Payment

Depending on the type of loan your applying for your down payment can be from 10% to 20% of the loan value. If you do not have the required down payment saved you may be denied the mortgage loan. If you don’t have much saved, then look to a FHA approved lender for a loan. They have lower down payment requirements and will have more flexibility with how you obtain your down payment. You can also investigate down payment assistance options.

Also consider that you will need money saved for closing costs. These can be up to 6% of the loan value for taxes, insurance, title insurance, etc. All these type of costs are needed to close your loan. If the lender sees you don’t have enough saved for these costs, you may be denied a mortgage loan. You cannot avoid these costs. If you don’t have the money saved for these, there are some seller concessions that can help. But that will be up to the seller to agree to them.

Not Enough Income or Haven’t Worked at Your Current Job Long Enough

Your monthly payment with PITI (principle, interest, taxes, and insurance) for the home you want to buy cannot be more than 28% of your total monthly income. For example, if your gross income was $2000/month then your maximum house payment would be $560 PITI. If it is more, then the lender could consider you too great a risk and deny the loan. If your total debt including your house payment, revolving accounts (like credit cards, department stores, etc.) and your term loans (like auto loans, student loans, etc.) are more than 42% of your gross income each month, you will also be denied. So then, if you have that kind of problem, wait and pay down your debt and then re-apply for the loan.

In addition to that, you should have two years of employment on the same job. If you changed jobs to improve your income that would be okay. Preferably, the lender would like to see you continue in the same line of work.

Let’s say in the last two years your employment history looked like this:

worked for six months at a fast food chain; laid off or without a job for four months; and you worked for fourteen months at a convenience store as a cashier for minimum wage.

In most cases you may be denied a mortgage loan because you didn’t have continuous employment in the same line of work.

Now let’s use the same scenario for the last twenty-four months:

worked at a fast food chain for twelve months; while doing so, attended college to become a dental hygienist and finished; quit job at fast food chain; and found job as a dental hygienist.

As long as there wasn’t a gap of more than two months between jobs, this would be considered continuous employment and you could be approved for the mortgage loan.

These are just a few reasons why you may be denied a mortgage loan. It’s not the end of the matter! Take action and fix whatever the problem. Soon you will be qualified for a loan and have that dream home.

Jeffrey Ragan wants to help first time home buyers learn more about the home buying process and other helpful information on their website, First-Time-Home-Buyer-Solutions.com

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