Top reasons why mortgage applications get declined

As you dive into the homebuying process, you may be surprised to learn your loan application could be declined by your proposed lender. Although this can be frustrating, it shouldn’t stop you from pursing your dream of owning a home.

There are several reasons your loan application could get declined—and some you may be able to proactively address. Your first step toward a solution should be to talk to your potential lender about why the application wasn’t approved. Potential reasons for a declined mortgage application include:

There is no “magic score” to qualify for a home mortgage, but a high score may qualify you for a higher loan or better interest rate. If you’re interested in improving your credit score, you can take steps like paying your bills on time, keeping a low balance on your credit card, and not applying for new credit.

Continuing to build your financial literacy and learning about all the ways you can improve your financial situation could help you qualify for a loan in the future. And remember, being turned down for a loan doesn’t necessarily mean you can’t get approved for a loan for a different amount at a different property. Be sure to communicate with your lender throughout the process.

Mortgage lenders will look at your debt-to-income ratio, which is a measure of your monthly minimum debt payments compared to your monthly income. In general, the lower your debt-to-income ratio, as well as a lower amount of debt, the more likely you are to potentially qualify for a mortgage. Having fewer overall debts may also make your monthly mortgage payment more manageable for your budget.

Your income should be able to support the monthly payments for the loan you requested. If it can’t, you may need to consider applying for a lower loan amount. You can also consider having a savings plan to increase your down payment amount, which would help lower the loan amount, and in turn, reduce your monthly payment each month.

An appraiser could say the property value is lower than what the sellers are asking. If this happens, try lowering your offer price, or find another property.

Lenders want to ensure you have a strong and consistent employment history to ensure you’ll have the funds to make your monthly payments. Ask your lender how long of an employment history is required, and then plan accordingly.

If your mortgage application has been declined, talk to your mortgage consultant to learn the reason(s). This will allow you to more confidently start making changes to improve the chances of having your application accepted in the future.