Getting approved for a mortgage loan could enable you to move into a new home. However, a recent financing denial might delay your plans. Perennial Funding employs highly experienced loan officers who can offer you some helpful insight toward obtaining a home mortgage loan.
Understanding a Home Mortgage Denial Letter
A mortgage denial letter is a disclosure that the federal government requires lenders to send to a borrower who is unable to meet the financing criteria for a home loan request.
While receiving a mortgage denial letter may deter your motivation to buy a home, your loan officer and the lending institution are often disappointed by the missed opportunity, as well. For instance, if you initially received a mortgage prequalification and a mortgage preapproval, it might appear as if a lot of your time and the lender’s resources were wasted.
Keep in mind that an unfavorable lending decision is an action that informs you of the lender’s reluctance to provide financing for the property that you wanted to buy or to refinance.
Shown below are some of the reasons that you may have received a loan denial letter.
Excessive Debt Ratio
During the underwriting process, some debts might be discovered that the lender was not aware of prior to issuing a mortgage preapproval.
In order to stay compliant with affordable lending guidelines, mortgage companies use a variety of industry-established thresholds to avoid overextending a borrower with monthly debts. Your debt ratio is a calculation that compares your total monthly debts against your gross monthly income. Certain financing programs will allow your debt ratio to range from 36 to 45 percent of your monthly income, while several underwriting models will permit up to 50 percent of your monthly income for qualifying purposes.
For instance, if your gross income is $4,000 per month, a 50 percent utilization of your income will result in monthly debts of $2,000.
Unsatisfactory Credit History
Mortgage lenders utilize software programs to evaluate a borrower’s likelihood of default. A combination of your income, debts, assets, credit history and your credit score are key indicators that an underwriting software model uses toward predicting your probability of making timely payments.
While an acceptable status might have existed at the time of preapproval, changes to your credit rating could negatively impact your ability to qualify for the mortgage loan that you are seeking.
Issues With Underlying Collateral
Mortgage loans are secured against real property. However, the underlying collateral value for the subject property needs to equal or exceed the loan amount. In addition to the collateral value, the subject property must be in a condition that is acceptable to the lender. For instance, a home that is more valuable than the sales price will meet some financing resistance on traditional lending programs, if the property does not have working electricity or if there is a large hole in the roof.
When a subject property has safety concerns, pests or other physical conditions that are not satisfactory, a lender will usually request that specific modifications are performed to cure the deficiency, or the lender will issue a mortgage loan denial.
A mortgage loan denial for any of the above reasons might be worth discussing with one of our loan officers. We can help you explore other opportunities to buy a home via alternative financing programs or examining your finances against a more affordable property. Contact Perennial Funding to speak with an experienced mortgage loan officer today.