What to do when you’re told you can’t qualify for a mortgage

If you’re trying to purchase or refinance a home and you’ve been turned down, read on. Perhaps your income is not up to par, or your credit score is not up to par or there’s some sort of material financial situation making your loan application problematic. Here is what to know…

Most mortgage companies generally want borrowers who have an ample supply of cash, credit, and income and otherwise have a fundable loan. After all, every mortgage company in America is in business to originate and make mortgages for families looking to pursue the American dream. Simply put, some mortgage companies will take a file so far and if your financial situation still doesn’t meet their standards you might be turned down which can be incredibly discouraging as buying a home can be an emotionally driven process. Getting another opinion particularly if you’ve been turned down before is a really good idea. In fact, you owe it to yourself and to your family to fully exhaust all options.

Ways to increase borrowing power…

  1. More down payment-Did you know you can borrow on your  401k to buy a home? You can and most of the time it’s pretax which means the monthly payments because it’s pre-tax feels like a lot less for example if the payment on your 401K loans to buy a home is $200 a month it might only feel like maybe 50 bucks a month because it’s pre-tax. Most 401k  providers will allow you to borrow money on a primary home as long as there are no other loans on the 401K at the time you borrow the money. Can you ask mom and dad or a personal family friend for help? How about grandparents? All of these are eligible sources of gift money.
  2. Pay off debt- It’s called paying off debt to qualify. Paying off debt to qualify almost always will increase your borrowing power sometimes as much as two to threefold than putting extra money down hoping to get the mortgage payment lower when the overall problem isn’t the mortgage payment, but it’s your total monthly debt load as it relates to your monthly income and mortgage payment and proposed mortgage payment.
  3. Increase your credit score– This is generally only a viable option if your credit score is super low say for example sub 620 on most mortgages getting your credit score up unless your credit score is under 620 will not move the needle all that much as you would be better served to buy the house with the credit score that you have and then refinancing the house later as your credit score will automatically go up as a result of buying a home anyway.
  4. Changing loan programs could be another possibility for example going from a conventional loan to going to an FHA loan the debt-to-income ratio requirement on an FHA loan generally is 56.99%. This could be a good needle mover considering the maximum debt-to-income ratio on a conventional loan is 50% of your monthly income.
  5. Get a cosigner- That means similar to the gift situation ponying up the courage to ask mom or dad or brother or sister or a family member for example for help and have them cosign on your mortgage. Maybe your income is on an upward trajectory and you know you’re going to receive a big raise and you can afford the payment today, but the lender is saying you’re at a certain price point. Co-signor means more income, which translates into bigger purchasing power.
  6. Consolidate debt-If you have student loans and credit cards for example maybe you can take out a personal loan or one big credit card and consolidate all the payments and get one low monthly payment. If you make your monthly payments lower that can increase your borrowing power, for example, $300 a month less of monthly payments translates to about $50k of purchasing power.
  7. Self-employed– work with a qualified mortgage professional who understands the intricacies of self-employed income this could absolutely be an arrow in your quiver, for example, let’s say you’ve been filing tax returns self-employed for the most recent seven years. During the pandemic, your income was super low. Let’s say in 2022 this year your income is super strong. You can work with a lender and provide them with the tax return for 2021 and they can tell you the level of income that you would need in order to qualify for 2022 they can’t tell you how to fill out the tax return or give you legal advice, but they can tell you an approximate level of income that it would take to purchase a home in 2023 when you go to file your 2022 tax return.

Ask the mortgage company that you’re working with if they’re familiar with all of these ways to improve your borrowing power if they are great that may be a good fit however if they’re not or they seem surprised turnaround and run! Your money, your credit score, your financial future, and your ability to build wealth via real estate are too important to place in the hands of an inexperienced or unqualified, or worse a call center mortgage professional. You want someone who’s experienced and who is well versed in the intricacies of mortgage finance today so as to make a smart informed decision. Looking to buy a home? Get a no-cost quote today.

 

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