After finding the right home, it can be heartbreaking to hear that your mortgage loan application has been denied.
Before you throw in the towel on buying a home, it’s important to know that many of the reasons that loans get denied are fixable. While fixing the problem may not happen overnight, with a little bit of patience and work, buying a home may be possible sooner than you think.
In this post, we’ll take a closer look at why many Knoxville mortgages get denied and what you can do to help fix the problem.
The first step to fixing a loan denial is to understand why the loan was denied in the first place. After all, you cannot fix the problem without understanding why a loan was denied.
Oftentimes, buyers are so devasted by the loan application being denied they will only hear that their loan application was denied. At that moment, it can be hard to hear any more than that. But if you’re serious about buying a home in the future, it’s important to hear why your loan application was denied.
Ask your loan officer for the opportunity to find out additional information about why your loan was denied. Did a change in income cause the denial? Did you buy a car and accrue additional debt? Or, were there changes to your credit score that caused the denial? Regardless of the situation, it’s important to know what the problem was so you can fix it.
In addition to finding out why you’ll also want to see what you’ll need to do in order to qualify for a loan. Your loan officer should be able to advise you on what needs to be done. By having an understanding of what you need to fix, you’ll be able to address the problem that caused the denial in the first place.
Credit scores are a common reason that loans get denied. This is particularly true if a buyer’s credit score is borderline to begin with. If a credit score was right on the edge of approval, if it takes a hit during the loan approval process, this can cause the denial of the loan application.
If your loan was denied for this reason, you’ll need to improve your score in order to qualify for a loan. Here are a few things that can be done to help improve your credit score:
It can take some time for your credit score to improve, but with a little effort, you should be able to see a change in your score. Your loan officer should be able to advise you on where your credit score needs to be in order to improve your overall score.
Debt is often a reason that Knoxville mortgage loans get denied, especially when buyers are borderline on their debt-to-income ratio. Debt-to-income (DTI) is the ratio of what you make per month and the monthly debt that you have to pay each month. Generally, mortgage companies want a buyer’s debt-to-income ratio to be less than 50% (not including a mortgage payment).
For example, if you make $3,500 per month, but have $2,500 worth of monthly debt, your DTI is greater than 50%. This could make it hard to get approved for a loan since mortgage companies want to make sure there will be plenty of extra cash to cover a mortgage.
If your DTI is too high or you’re right on the border of a high DTI ratio, you could find yourself getting denied for a loan. The best way to address this is by paying down debt. Take care of paying down your loans or credit card bills so that your monthly debt is reduced. While this could take some time to pay down, but it will reduce your DTI and help you qualify for a loan.
If you’ve been denied for a loan, it doesn’t mean that you’ll never buy a home. It just means that you may need to do a bit of work before you’re able to buy.
Be sure to have a good understanding of what you need to do to buy a home. It helps to have a clear understanding of why your loan was denied int he first place. A good loan officer will be able to provide you guidance on this.
It can help to get pre-approved from the start of the transaction. When you get pre-approved, all of your information will be vetted. This can help avoid a loan denial late in the process.
Are you thinking about buying a Knoxville home this year? Please let us know if there is any way that Knoxville Home Team can assist you. Rick can be reached at 865-696-9002 or via email at [email protected]. Kati can be reached at [email protected].