What To Do When Your Loan is Declined

Dated: 09/07/2018

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Declined! It's unfortunate, but it happens. There are lots of reasons why a lender will decline a borrower, but the majority of the time the reasons have to do with insufficient credit or low credit scores. 


Sometimes the Debt-to-Income Ratio is too high. If someone owes too much of their monthly income on debt, they are more of a credit risk. Lenders have varying DTI limits, but you'll find that 43 percent is the highest ratio a buyer can have and still get a qualified mortgage. (you can get a rough idea by adding up all your monthly debt payments and dividing that number by your gross monthly income.)

Both of these situations can be fixed. Here are 6 points to remember:

1. Many people are surprised to find that they have too much debt, or that their credit is lacking. Keeping on top of your credit is important, not only if you're looking to purchase a home, but just to protect yourself from identity theft, or other damaging acts. Everyone is entitled to one free credit report a year from the three top credit reporting agencies:  Transunion, Experian, and Equifax.

2.  Most of the time the debt-to-income problem is due to credit card payments. The good news is that credit cards are the easiest to take care of. However, they need to be taken care of in a strategic way

3. Don't Give Up! The majority of credit problems can be fixed, and many times they can be cleaned up in 12 months or less. You'll want to pay down your debt strategically. You may want to reach out to a credit repair specialist to get the best strategy for your situation.

4.  If you don't have sufficient credit, it may take a little longer to build up the kind of credit a mortgage lender is looking for. The underwriter generally wants to see the previous 12 months of financial activity. The FICO score also weighs the most recent 12 months more heavily. So, if you are declined for a mortgage, the good news is that you can make the changes necessary to improve your credit-worthiness within 12 months.

A Loan Decline is a Detour not the End of the Road

It’s not what you wanted to hear… but it happens. Sometimes it means fixing your credit, sometimes it means you need to lower your debt. Either way, it’s not a final judgement, just a hurdle. Don’t give up!

Read more great tips and watch our video When the Lender Says "No"

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Christopher Highland

I'm the Broker of eXp Realty in Maryland, I've been helping people move in and out of Central Maryland for over 25 years.....

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