Three Issues That Lead to a Denied Mortgage Loan

No one wants to hear word their mortgage application is declined. Yet, according to Money Magazine, mortgage applicants with credit scores lower than 760 can be delayed or, even worse, denied outright. According to FICO, mortgage lenders consider people with scores over 760 of being low-risk. Others face loan rejections, increased interest rates, or special requirements before a mortgage is granted. Here are three of the most common reasons loans are denied.

Failure to Apply for Pre-Approval

Before you even apply for a mortgage, talk to a mortgage lender about pre-approval. This process delves into your credit and determines how well-qualified you are to receive a mortgage. It also gives you the maximum price range to use when you shop for house. In addition, realtors and home owners are far more likely to consider your offer if you have been pre-approved for a mortgage.

Debt to Income is Too High

Mortgage companies look at your percentage of debt to your monthly income. This percentage is critical to determining if you are a worthwhile risk when it comes to lending. To calculate your debt to income, calculate your rent or mortgage payment, all credit card or installment debt, car loans, and utilities (heating fuel, electricity, water, cable television, Internet, etc.) That number should not be more than 43 percent of your monthly income. If it is, you are at risk of being denied a mortgage. If you are over that 43 percent mark, reduce as much debt as possible or boost your income a few months before you apply for a mortgage to improve your ratio.

Late or Missed Payments

Always check your credit report approximately three months before you apply for a mortgage loan. If there are any late or missed payments showing up, you run the risk of being denied the home loan. Once a lender sees this payment, you'll have to get the company to submit a letter that the account has been paid up. This can take time to receive, and you could lose out on your home purchase during that wait.

By checking prior to the mortgage application, you can ensure your credit report is in order. If there are problems, you have time to correct errors or pay off accounts you have overlooked.