June 2, 2014 by Leave a comment

Since mortgage interest rates are relatively low, now might be the perfect time to purchase your first home. Unfortunately, the excitement of buying a home can end abruptly when a lender denies your mortgage pre-approval.

A mortgage pre-approval is the best way to know whether you qualify for a home loan, and how much you can spend on a house before starting the search. However, as a first-time home buyer, you might not fully understand what lenders look for in an applicant.

Getting denied should not discourage your efforts, although you may need more time to prepare for this large purchase. Therefore, here are five things you can do if you can’t get pre-approved for a mortgage loan.

1. Ask for an explanation

Mortgage lenders are helpful and they’ll provide a reason for the rejection, plus advice on how to proceed. Several factors can disqualify you for a mortgage loan, such as inadequate income, a low credit score and questionable employment. However, if you take a lender’s advice and make the necessary improvements, you might qualify for financing in the future.

2. Build your bank account

When applying for a home loan, the lender will ask for copies of your bank statements. This is to ensure that you have enough cash for your down payment and closing costs. In addition, some lenders want to see a 2 to 3-month cash reserve after paying mortgage related expenses. If you will not have a cash reserve after paying closing costs and the down payment, the lender may recommend that you postpone buying a house until you’ve saved additional money.

3. Add points to your credit score

A conventional mortgage loan requires a minimum credit score of 700 or higher.  Therefore, if you’re turned down for a mortgage due to a low credit score, take steps to build your credit. This can be as simple as paying all your bills on time over the next 6 to 12 months, or paying off a credit card to decrease your credit utilization ratio, which will subsequently raise your FICO score.

4. Increase your income

On the other hand, you might have excellent credit, but not enough income to qualify for a mortgage loan. There are several ways to approach this dilemma. Speak with your lender to see if you can qualify for a lesser amount; or if your spouse works, perhaps you can apply for a joint mortgage, at which time the lender uses your combined income to determine affordability. And if too much debt prevents a pre-approval, paying off credit cards and other loans — student loans, auto loans and personal loans — can increase purchasing power and help you qualify for the desired amount.

5. Wait until the two-year mark

Employment gaps can be the kiss of death when applying for a mortgage loan. For the most part, mortgage lenders require 24 months of consecutive income. Therefore, if you’re just entering the job market, or if you were unemployed in recent months, the lender may reject your application and require that you wait at least two years before re-applying for a mortgage loan.

Bottom line

Applying for a mortgage loan will have its share of obstacles, especially since lenders have tighten their requirements. However, if you carefully prepare for a purchase, you can successfully meet a lender’s qualifications and get the keys to your new home.

Total Mortgage has exceptionally low mortgage rates. Contact one of our experienced mortgage experts to find out how much you can save. Get started today.


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