Did you know that only about 40% of all mortgage applications eventually close? 6 out of 10 prospective homebuyers will walk away without getting the home they’ve been dreaming of. The good news is that if your mortgage application has been denied, there are things you can do about it. Though it may take several tries to get it right, Leaf Credit Solutions can help you get your mortgage application approved.
Your first step is to found out why
After you’ve found out why your mortgage application is denied it’s generally pretty easy to get your finances in order for another try. The most common reasons for the denial are:
- A low credit score
- High monthly debt payments compared to your monthly income
- Applying for a higher mortgage than is recommended based on income and assets
Remember that lenders and brokers want to approve your mortgage. This is how they make their livelihood and how they get paid. If you don’t immediately qualify they should want to work with you to help you understand why your application was denied.
Impact of low credit scores
Mortgages are a somewhat unique loan type in that you automatically have collateral when approved: the home you’re buying. As a result, even those with lower credit scores can sometimes get approved for a mortgage. However, it’s still a reality that the lower your credit score is, the higher your interest rate will be. That’s why you should take every step possible to raise your credit score before taking out a mortgage.
Do you know what the primary factors of a low credit score are?
In order of importance, the main reasons for low credit scores are:
- Delinquent payments
- Excessive debt
- A short credit history
- Many credit inquiries within a short period of time
Because delinquent payments are the top factor lenders will consider, there is nothing you can do to help your credit score as much as paying your bills on time. A single 30-day late payment could decrease your credit score by as much as 100 points. It can take years of on-time payments for your credit score to recover, but there are other options that can work much more quickly. Contact us to learn more.
What to do about excessive debt
Excessive debt is another main issue for lenders, but how do they define it? Simple: they compare how much debt you have compared to your available credit. As an example, if you have $10,000 in credit card debt and a total credit limit of $20,000 then you’re using about half of your available credit. For most lenders, this is too high. Your goal should be to get it to under 20% by either paying down your debt or increasing your available credit.
How to handle a short credit history
A longer credit file will result in a higher credit score. If you’re a potential borrower who’s only had credit for a few years then the best option may be to wait a few years before getting a mortgage. However, if the issue is that you’ve only had a few credit cards on your report, then there are actions you can take. The first step is to take out some type of fixed installment loan. The most common example is a car loan, but there are other options. The key is to improve the different types of credit you have. This doesn’t mean you have to go deep into debt. You might take out a loan, pay it regularly for a few months, and then pay the balance off in full. You don’t need to carry a balance, all you have to do is get it open in the first place.
What to do about too many inquiries
Put simply, there is one way to avoid being turned down due to too many inquiries: don’t apply for credit cards – or any other type of credit – for at least six months but preferably twelve months before you apply for a mortgage.
Still struggling for answers? Not sure which tip to follow first? Contact Urgent Credit Solutions and let us get you back on track fast!