If you could anticipate the reason a bank or lender might reject your loan application, you could rectify it before ever applying. The following four typical reasons for credit denial will give you insight, so you don't have regret, in hindsight.
1. Flat Out Credit Score Denial
Don't apply for a loan before you examine your credit report for yourself. Check that all the information is accurate and if it's not, contact the company who reported the erroneous information. If your score isn't considered acceptable, you will have your work cut out for you in terms of improving it; this may involve time, where you are required to prove your credit worthiness by keeping up with credit cards and other debts moving forward or going into the past and actually paying old bills, if needed. Either way, improving your credit score is necessary to be considered for most loans, even those with high interest rates.
2. Debt-To-Earnings Ratio Problems
If you're under a significant amount of debt, yet your income isn't keeping up the pace, you're facing an unfavorable debt-to-earnings ratio and this is something that will logically prevent you from being approved for a loan. Lenders weigh the risk of you not being able to pay them back; thus, if you're already struggling or barely breaking even, they don't think you can handle another payment. Either chip away faster at your debt or find a way to increase your earnings to remedy this common consumer dilemma.
3. Applying For A Home You Can't Really Afford
Even if you're free and clear of heavy debt, if a lender looks at your earnings and the terms of a prospective mortgage and determines repayment will be a stretch for you, they could easily reject your application. Know your budget and try to work on the lower end of what you think you can afford, so that you have more breathing room with the bills. Beyond the denial from a lender, you really don't want to put yourself in a tight financial situation anyway.
4. The Home Isn't Up To Par
Even if you've been preapproved for a specific amount of money, no lender is likely to allow you to move forward in the purchase of a home if the home has been grossly over-valued or if it can't pass a standard inspection. Keep this in mind as you search for a home and be prepared to look beyond the aesthetics as you do so; often times a home's problems exist beyond what buyers can see, such as in structural, electrical or plumbing areas.
While you can't predict the future, you can understand the logic behind the acceptance and approval process with loans, so you're better prepared to succeed. While hindsight may be 20/20, foresight is often best. Contact a professional like Dave Schell at Guaranteed Rate Mortgage to learn more.