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    What Should You Do When You Want to Buy a Home But Have Been Turned Down by a Lender?

         

    When you’re intent on buying a home and actively thinking about the future, being turned down by a lender can feel devastating. Just because you were denied a loan doesn’t mean that your home owning dreams are over. Learn what steps to take to keep things moving in the right direction.

    Look into the Reason You Were Turned Down

    Before you can begin to remedy the situation, you need to know what went wrong. The loan agent should have provided a denial letter (what’s often known as a Adverse Action Notice or Statement of Denial), but these documents can be vague and hard to dissect if you’re not familiar with the industry jargon. Take some time to review the information in the letter and ask your lender to explain or expand upon the points that aren’t immediately apparent. You’re entitled to understand why your loan was turned down, even if that means asking for clarification and reviewing the document with an agent. Some loans are turned down simply because the loan structure is incorrect or don’t fit with existing “overlays” that are unique to the lender in question. Both reasons don’t hurt your chances of getting approved on your next try. Looking into the reason you were turned down will help you determine the best course of action to increase your likelihood of approval in the future.

    Examine Your Credit Score

    One of the biggest reasons loans are rejected is poor credit. Many people assume that their credit will be good if they pay their bills on time, but there are a variety of factors beyond payment history that affect your credit score. At a basic level, your score is influenced by the amount of your current debts, your duration of credit usage, the types of credit used, and any recent credit inquiries. Making on-time loan and bill payments should be your top-priority, but there are other ways to boost your score. Practice savvy credit card usage by keeping tabs on your credit utilization rate and not exceeding 75 percent of your available balance. Though it may be tempting to try to expand your breadth of credit by applying for a new card, applying for multiple lines of credit simultaneously or doing so in a short window will have a detrimental impact on your score.

    Along with increasing your likelihood of being approved for a home loan, improving your credit score will help you earn a lower interest rate on your mortgage and ultimately save you more money long-term.

    Ask for a Copy of the Credit Report Your Lender Used

    In addition to examining your credit score, look into how your credit was assessed by the loaning agent to determine what system and number they’re working from. The two standard credit scoring systems used by lenders are FICO and VantageScore. Though both systems take the same aforementioned criteria into account, they use slightly different weighting schemes that lead to different overall evaluations. Knowing which score was used in your loan application and understanding the differences between the two methods can help you determine what to focus on in order to improve your credit score.

    Do Some Comparison Shopping

    There’s more than one type of loan and mortgage solution available today. Your ability to qualify for a home loan can vary dramatically between lenders depending on what loan options and programs they offer. Do some research to determine what types of home loans are available to you and how they differ. Popular loans include: conventional mortgages, FHA mortgages, VA loans, Adjustable Rate Mortgages (ARM), and USDA Federal Housing Loans. FHA mortgages tend to be more lenient with regards to credit score and debt-to-income ratio and often require the beneficiary to put less money down.

    Just because you qualify for a loan doesn’t necessarily mean that it’s the right fit. When considering other loan possibilities, bear in mind key criteria like interest rate and type, loan duration, mortgage points, and down payment options.

    Seek Out Professional Guidance

    Researching your mortgage options and dissecting the nuances between different plans can be tricky if you’re not well-versed in the industry. It’s easy to get lost in the minutiae and harder to figure out what will matter most to your bottom line. Enlisting the help of a mortgage professional will help you identify alternative lending options and evaluate them within the context of your current financial situation and long-term goals.  

    Being informed shouldn’t come at a cost—that’s why we’ll take a second look at your claim to help you determine the best course of action for you and your family. To connect with one of our experienced mortgage professionals, simply schedule your free mortgage analysis today.

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