Often, when your lender
scrutinizes your loan application for a new home or
piece of property so finely that it is finally turned
down, it can be very distressing. If this happens, you
should be able to understand just why such a decision
was taken and do what you can to remedy the situation.
The cause for rejection given below will help you understand
just why it happens to some people.
Causes for rejection:
The appraised value is far too low: Your lender perhaps
found the ratio of the loan amount to the sale price
or the appraised value of the property to be substantially
lower than the purchase price or loan-to-value (LTV)
ratio. Or perhaps the LTV is higher than your lender
is allowed to approve. Then, perhaps you have applied
for 90-95% of the purchase price as the loan amount.
A low appraisal will then make your loan request far
too large.
If the seller’s price of the property far outstrips
the prevailing rates in your locality, you would be
best advised to renegotiate the price with him so that
it conforms to the prices in the area. It should also
be one which your lender would not refuse in order to
pass your loan request. If this can’t be done,
it might be a better idea to accept a smaller loan amount,
and pay the balance from your personal funds.
Insufficient funds: When your lender goes through your
financial information and you’re verification
of deposit, he will find that you do not have enough
funds to make the necessary down payment and cover closing
costs. Even if these funds do not come from a loan,
a gift could go a long way. Alternatively, you could
ask the seller to take back a second mortgage on the
property. This would help lower your down payment or
get the seller to pay some of the closing costs, perhaps
the origination fees. After all this, you could ameliorate
the situation by just waiting in the wings, while you
begin a savings scheme.
Do you have insufficient income? Lenders will refuse
your loan application if they find that the mortgage
payment on your property exceeds 28 percent of your
monthly gross income. In addition, if your total debt
including mortgage payments and other installments exceed
36 per cent, you stand to be refused. The figures are
higher for FHA loans. But the situation can improve
for you if your credit card record is good and you can
prove that you already are carrying a huge household
expense including rent or mortgage payments, perhaps
your lender will swing his decision in your favor. This
is just why you need to make a clean breast of your
income and expenses while making an application.
Up to your eyes in debt: Often, lenders don’t
reject applications solely because of the amount of
debt they carry on their heads. It is also the many
credit cards they possess and revolving credit accounts
with proof of rising account balances that come close
to the limit prescribed. Such information is detrimental
if you are out to prove your creditworthiness. To remedy
the situation, you will need to pay off as many of your
debts as possible and then reapply for a loan.
Poor credit history: What can be more devastating than
to have your loan request turned down due to a history
of poor debt repayment habits? If your lender sees that
you have a history of making late charges often, owing
amounts to the bank or insolvency, he’s hardly
likely to pass a loan application for purchase of property.
Your lender is surely not going to be tolerant of a
bad credit record. Even if you have had a low loan-to-value
ratios and debt ratios, you cannot wipe out a history
of poor credit.
Rejection is not the end of the world: Just because
a lender rejects your loan application doesn’t
mean you can never own property in all your life. You
can take corrective steps to improve your chances of
acceptance. But if you work steadfastly at it, you can
work a way round your problems. Find out why your loan
application was rejected and work towards loan acceptance.
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