The question, “Why did the lender deny my home loan?” is a good one to contemplate. Thinking like a lender helps a great deal when you are planning and saving for a construction loan application, condo loan application, or when you want to buy a multi-unit home.
Do you know why a lender might deny your application? There are several factors to ponder, no matter what kind of borrower you might be. Are you looking for a condo loan? Mobile home loan? Multi-unit house?
Some of the reasons lenders deny home loan applications are fairly obvious, others are not. Review the following circumstances to see if any apply to you.
This is not a comprehensive list, but it’s a great place to begin and some borrowers find at least one of the below applies to them but that over time, these issues can be solved for loan approval.
If you haven’t been employed for more than a year total, wait to apply for a home loan. Two years in the job market total (it does not have to be with the same employer) is a better bet.
If you apply before the two year mark, you risk being denied a home loan because there hasn’t been enough time to prove your income is stable and likely to continue. This is what the lender needs to know about your income to approve the loan.
Not Enough Time In Certain Job Types
This scenario is most relevant for those who have made some kind of career switch such as changing from salary to commission, hourly to commission, those who have recently started working for themselves as small business people, etc.
Applicants in these scenarios need a solid track record in the new job before the lender can consider your income as stable and likely to continue. Don’t apply for a home loan if you haven’t been working in this capacity for more than a year. Two years is recommended, but be sure to ask a loan officer what the financial institution’s standards in this area might be.
Payment History Problems
Late or missed payments, especially on housing, in the two years leading up to your loan application, should be avoided at all costs. At a minimum, you should come to the process with a full 12 months of on-time payments for ALL financial obligations for best results.
Do you have too much debt? In this context we are comparing your debt to your monthly income–there is a calculation your lender must make to ensure you can actually afford your mortgage loan. You may not qualify for a home loan if your debt ratio is too high. Are you paying more than 50% of your income every month in financial obligations? Cut this ratio by at least 10% or better for best results.
Bankruptcy Is An Issue
Any home loan applicant with a bankruptcy (or other judgments, depending on circumstances) may be required to wait a minimum amount of time called a seasoning period before they can apply for a mortgage loan. Applying before the seasoning period ends will result in loan denial. This period may be shorter or longer depending on the lender you use.
Take your time when planning and preparing for your home loan. When the time is right, discuss your needs with a loan officer to learn what the best mortgage loan options are based on your financial needs and goals.