Getting your home loan request denied, is certainly not a fun thing to deal with. Lots of times certain mortgage companies have internal mortgage loan underwriting requirements which might be more constrictive than a competitor of theirs. Not every mortgage company has the same set of guidelines and standards. Fannie Mae and Freddie Mac and HUD have a certain set of home loan underwriting criteria.
So if you are denied financing, consider reapplying with a different mortgage company because they might have less restrictive criteria.
Here is a prime example; HUD mandates there is no minimal credit score required for FHA insured loans. While this remains true, you cannot secure an FHA insured loan if your credit score is less than 640. Most mortgage companies have a minimum credit score threshold on government loans, 640.
Why the discrepancy? It’s because the mortgage companies that create and bundle the loans to be sold in the secondary market do not want to put themselves in selling a risky asset to Wall Street. If that mortgage loan goes bad, it falls back on the mortgage company and their ratings with the secondary market fall. This is the type of activity that can make or break a successful mortgage company.
Another example let’s say you are dealing with a big bank. They interpret your monthly income to be X and your debt to income ratio to be Y. Based upon their mortgage loan underwriting, they deny your loan because your home loan debt to income ratio is too high for their comfort level. You don’t have any room to increase your credit score, you cannot increase your income, and you only have a fixed down payment. What do you do? You reapply with another mortgage company. Granted the process might take longer, but you’ll have another chance of being able to make the financing work.
Find out specifically why your mortgage loan was denied, then reapply with another mortgage company.
When you reapply with the second mortgage company, you will want to explain everything pertaining to the loan denial with your original lender. This includes, but is not limited to the following:
- go over the credit score with the new lender
- go over your income with the new lender
- go over your assets with the new lender
- go over your complete financial picture to the best of your ability with the new lender as well
By gathering as much information as possible about how and why your mortgage loan was denied, you can go in with a clean slate to the new mortgage company tackling the qualifying issues head-on. You’ll want to ask the new mortgage company you’ve selected, if they have the same underwriting criteria. Because if they do, that will be a sign to look elsewhere.
* Mortgage Tip: almost every mortgage company has a different set of internal underwriting criteria.
Just because a mortgage company denies your loan does not necessarily mean you will not be successful and ultimately procuring financing. Do not give up. Reapply for a home loan, again and again until you can be successful. It’s always a great idea to consider a correspondent direct lender or even a mortgage broker rather than a big bank. The majority of the big banks in most cases have the most constrictive underwriting guidelines in the industry. So if your home loan was denied, consider reapplying with a different mortgage company.
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