How many Americans are rejected for a mortgage loan on an annual basis?
Data are scarce on the topic, but a Federal Reserve study shows that one in eight Americans were turned down for a mortgage in 2015 — and overextended credit was at the top of the list of reasons lenders used to reject mortgage applicants. The Federal Reserve study pointed out that a high debt-to-income ratio — i.e., the amount of money you borrow against the amount of money you make — was a top credit-based reason for mortgage rejections.
If you’ve been turned down on a mortgage loan due to bad credit, get a grip and fight back.
Sure, the bad news is that your loan application was given the thumbs down, and that’s going to sting on multiple levels. But there’s good news for the hale and hardy mortgage applicant who refuses to quit: You can get on track to land that mortgage — and sooner than you might think.
Get that job done by taking these steps:
Find out why the loan was rejected — First, you’ll want to know the reason your loan was turned down. A lender must advise you why the application was declined, so you’ll want to make sure they had accurate information in the first place. This means check your credit report for any errors. If there are any errors, try to get these corrected or provide proof of why there is an error.
Play some “what if” scenarios — Use one of the free credit monitoring sites that allow you to see “what if” scenarios. For example, if you have a high loan-to-credit ratio, what would it look like if you got that number down significantly. Some programs allow a mortgage applicant to see approximately how many points his or her credit score would increase — and that’s both an emotional driver and a powerful exercise..
Next, take direct aim on paying down your loan-to-credit ratio. Aim for below 40% loan to credit ratio. For example, if your credit limit is $1,000, don’t have more than a $400 balance. Also, no all reported balance are correct. Dispute them if they are inaccurate, but it will still take time for the inaccuracies to be removed.
Shop around for a new lender — Different lenders have different policies and target different profiles of borrowers. There are also specialized mortgage programs for borrowers with impaired credit, many of which include counseling to prepare the borrower for home ownership.
Above all, make sure you’re ready before you apply for a new mortgage, both emotionally and financially. A loan officer is a salesman, not an expert. They over-promise and set false expectations. It is very common for a loan officer to tell clients exactly what the client wants to hear. They should instead offer helpful advice on how a (potential) borrower can get themselves “ready” to apply for a mortgage
The takeaway? Ignore the noise from pumped-up loan officers, work with a trusted financial professional, and make sure to gather the documentation needed that alleviates and addresses the loan underwriters’ concerns.