Reasons Why Mortgages Get Denied
The mortgage process can be stressful for homebuyers as they respond to lender requests and anxiously wait for final approval. The review and approval process typically takes 3 or more weeks to complete. A variety of issues can arise. Here are 4 common reasons why mortgages get denied. Knowing this information can be helpful to homebuyers in the Apopka, Florida area.
1. Appraisal Issues
Appraisals are ordered to verify the value of an Apopka, Florida home. Lenders use it to determine lending amounts, so the value needs to be equal to or greater than the purchase price. For example, if you are purchasing a home for $400,000 and are putting 5% down, the loan amount would be 95% of the sale price ($380,000). If the appraisal comes in lower at $390,000, then the lender will only loan 95% of that lower amount ($370,500). In this example, there is a $9,500 gap. Buyers can attempt to negotiate down the purchase price or put additional money into the purchase to fill that gap. If neither is possible, then the mortgage will not get approved.
2. Drastic Changes in Buyer's Finances
Mortgage reviews include a close look at your finances. This includes income, assets, and debts. If any of this information has changed or cannot be verified, it can alter a buyer's ability to obtain a mortgage. Buyers making major purchases (i.e. car, furniture) can sometimes change their debt to income ratios enough to disqualify them for the loan. Therefore, it is important not to incur any new debt when applying for a mortgage.
3. Insufficient Employment History
Another common reason why mortgages get denied has to do with employment history. Lenders want to know that you have a good history as that is an indication of your ability to remain employed in the future. If you have gaps in your work history, have too short a history, or have dramatically changed fields recently, this can present a problem. Individuals working as independent contractors may be particularly challenged when it comes to this requirement.
4. Poor Credit History
Lender's don't simply review your credit score. They also look at your account and payment history. Past bankruptcies, collection accounts, late payments, and other negative marks may create problems even if your score has since improved.
More on Why Mortgages Get Denied
Unfortunately, there is no definitive way to know whether your mortgage will be approved or denied until the process is started. The approval process includes a look at your personal finances and details on the property. Although some problems can be avoided, others are simply unpredictable. To improve your chances of getting improved, it's important to have open communication with your loan officer early in the process. Also, be diligent about your own activity and avoid actions that may create problems. By understanding why mortgages get denied, you can work towards getting your Apopka, Florida mortgage approved.