You finally found it — the home of your dreams. But now you feel it slipping away because your mortgage loan application was not approved.It’s understandable that you are disappointed and wondering what to do next.
Buying a home is an emotional process — being denied one can be more so. You are not alone. Since the 2008 housing crash, lenders have become more cautious, lending standards are more stringent and now even those with a high credit score are not guaranteed approval.
With a recent home loan rejection, you might think your dream of owning a home is gone. Not so, says Greg Cook, a mortgage broker with Golden Empire Mortgage in Temecula, Calif. “In our office, we never say ‘no,’ we say ‘not yet.’ I’ve had plenty of clients who have turned a denial into an approval.”
You can’t fix what you don’t know, so first find out why your application was not approved. There are many reasons applicants may not receive a home loan, including poor credit, changing jobs or not having a large enough down payment.
Your next step, Cook says, is to come up with a plan that covers all areas of your financial profile that will put you back on a path to homeownership. It’s understandable that you want to move quickly, but be patient. While most qualifying issues can be fixed, it will take some time. If, for example, you have a student loan that negatively impacts your credit score, the rehab process can take up to nine months, says certified credit report reviewer Hallie Hawkins, of Charlotte, N.C.-based Get It Together, which provides financial education.
If a bad credit history is holding you back, work on re-establishing it. “It’s not as hard as people think to repair credit,” says Gloria Shulman, a mortgage broker and founder of Centek Capital in Beverly Hills, Calif. Participating in a credit restoration program or paying down credit card balances are just a few ways to improve your credit score. Shulman warns, though, that overreacting to credit issues is one of worst things you can do. Instead of getting rid of credit cards altogether, manage a balance of about 10 percent of the total available line of credit. You can have your credit cards — and use them too. The key is to show lenders that you can manage debt responsibly by keeping a low balance and making payments on time.
A mortgage loan rejection doesn’t have to mean the end of your homeownership dream. But it does mean that you have some work to do. It may simply require saving up a larger down payment or it may entail a serious overhaul of your financial situation. With a little self-discipline and patience, you can get back on the path to your dream home.
Before You Apply for a Mortgage
Some qualifying standards for a mortgage have gone up, but that doesn’t mean you can’t get into the home of your dreams. To streamline the process and to put your best foot forward, here’s what you should do before you apply for a mortgage:
- Know your credit score.Request credit reports from all three major credit bureaus, since the information can vary. Work on correcting any inaccuracies or discrepancies between credit reports.
- Manage your debt.“With some exceptions, most lenders want to see a managed balance of about 10 percent of the total available line of credit,” says Gloria Shulman, a mortgage broker and founder of Centek Capital in Beverly Hills, Calif. No need to get rid of credit cards altogether, just use them responsibly and make payments on time.
- Manage your expectations.It’s easy to want the large home with amenities aplenty. But it might be too much home, with a price tag that you can’t afford. Before you fall in love with a home that lies beyond your price limits, first find out how much you canaffordto borrow.
- If you have already applied for a loan, don’t change anything in your financial profile.One reason potential borrowers are not approved for mortgages is that they have changed jobs or apply for new credit cards, says mortgage broker Greg Cook, of Golden Empire Mortgage in Temecula, Calif. Wait until after you loan is approved.
For further tips on achieving a great mortgage in 2017, head to Bankrate.com.