You have spent countless hours searching for a home, and finally found the home of your dreams. Then you spent more time negotiating back and forth until your offer was accepted. Now comes the moment of truth. You apply for a loan - and it’s denied.
It’s more common than you might think for a bank or mortgage company to deny a home loan application. At Lakeland Mortgage, we pride ourselves on finding solutions to meet the lending needs of our clients. But sometimes, due to circumstances beyond our control, it cannot be done.
A loan denial can happen even after you are preapproved and it happens for a number of reasons. Sometimes a change of circumstances occurs after you initially applied for the loan such as loss or change of employment. It could even be due to a clerical error. Fortunately, much of this is within your control and you can take the steps to remedy the situation for this loan or for future loan applications.
Here are some common scenarios and advice on how to turn them around.
- Low credit score: Your credit score is one of the first things that lenders check. It is measured via a credit scoring system known as FICO, established by the Fair Isaac Corp. to determine how likely you are to pay your bills. Credit scores range from 300 to 850. Lower scores could be considered more risky. That is why it is always wise to check your credit report for inaccuracies. You can get one free credit report each year from each of the major credit bureaus, Equifax, Experian and TransUnion. If you have genuine credit problems that are not simply mistakes on the report, spend time building better credit before reapplying for a loan. Here are 8 tips to improve and boost your credit.
- Insufficient income/too much debt: Your lender may determine that you don’t have enough income to afford the home you have chosen. Or, that while you earn enough, your money is committed to other expenses such as your car, outstanding balances on credit cards, child support or alimony, etc. Consider whether you truly can afford this home. Then, if you have additional cash, ask whether a larger down payment would make a difference, or perhaps pay off some debt to reduce your monthly expenses.
- Low home appraisal: The appraisal on the home may be too low. If that is the case, you can try to renegotiate the sales price. But if you’re unable to do that, it is probably best to walk away.
- Job loss: In this economy, it’s not unusual for people to have lost their jobs and changed employers as a result. But lenders like to see borrowers employed for at least two years. If you have an erratic employment pattern, a recent job loss or change, you may wish to consider bringing in a co-borrower, such as a relative with stable credit, to strengthen your application.
- Inaccurate, incomplete or inconsistent application: You may be considered a higher risk applicant if you are unable to furnish the required information, or if information you have presented is inaccurate or inconsistent. Make every effort to provide accurate records, even if they don’t show your financial situation in the ideal light. Then, address those areas that need attention so that you may be considered.
Seek a Second Opinion
Finally, if you have been denied for a loan, seek a second opinion. At Lakeland Mortgage, we welcome the chance to speak to you about your situation. Not all lenders have the same requirements or loan programs, and grants and other programs are available from the government if you qualify.
The Bottom Line: Build Your Financial Health
It’s important to stay in good financial shape, not only in preparation for buying your next home but for all of your future plans. Consult our Simply Speaking blog regularly for tips on everything from building your credit to financial planning. By building your financial health, you can plan for the future with confidence.
For Further Information
If you have additional questions, contact Jody Michael Tobia at 973-935-7119 or jtobia at lakelandbank dot com. Reverse and conventional mortgages, are offered through Lakeland Mortgage, a trade name of Sullivan Financial Services, Inc. and a wholly owned subsidiary of Lakeland Bank.