SolveYourProblem
Home Loan & Home Mortgage Article Series
Why Your
Loan is Rejected
Often, when your lender scrutinizes your loan
application for a new home or piece of property so finely that
it is finally turned down, it can be very distressing. If this
happens, you should be able to understand just why such a decision
was taken and do what you can to remedy the situation. The
cause for rejection given below will help you understand just
why it happens to some people.
Causes for rejection:
The
appraised value is far too low: Your lender perhaps found
the ratio of the loan amount to the sale price or the appraised
value of the property to be substantially lower than the purchase
price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher
than your lender is allowed to approve. Then, perhaps you have
applied for 90-95% of the purchase price as the loan amount.
A low appraisal will then make your loan request far too large.
If the seller’s price of the property far outstrips the prevailing
rates in your locality, you would be best advised to renegotiate
the price with him so that it conforms to the prices in the
area. It should also be one which your lender would not refuse
in order to pass your loan request. If this can’t be done,
it might be a better idea to accept a smaller loan amount,
and pay the balance from your personal funds.
Insufficient
funds: When your lender goes through your financial
information and you’re verification of deposit, he will find
that you do not have enough funds to make the necessary down
payment and cover closing costs. Even if these funds do not
come from a loan, a gift could go a long way. Alternatively,
you could ask the seller to take back a second mortgage on
the property. This would help lower your down payment or get
the seller to pay some of the closing costs, perhaps the origination
fees. After all this, you could ameliorate the situation by
just waiting in the wings, while you begin a savings scheme.
Do
you have insufficient income? Lenders will refuse your
loan application if they find that the mortgage payment on
your property exceeds 28 percent of your monthly gross income.
In addition, if your total debt including mortgage payments
and other installments exceed 36 per cent, you stand to be
refused. The figures are higher for FHA loans. But the situation
can improve for you if your credit card record is good and
you can prove that you already are carrying a huge household
expense including rent or mortgage payments, perhaps your lender
will swing his decision in your favor. This is just why you
need to make a clean breast of your income and expenses while
making an application.
Up
to your eyes in debt: Often, lenders don’t reject applications
solely because of the amount of debt they carry on their heads.
It is also the many credit cards they possess and revolving
credit accounts with proof of rising account balances that
come close to the limit prescribed. Such information is detrimental
if you are out to prove your creditworthiness. To remedy the
situation, you will need to pay off as many of your debts as
possible and then reapply for a loan.
Poor
credit history: What can be more devastating than to
have your loan request turned down due to a history of poor
debt repayment habits? If your lender sees that you have a
history of making late charges often, owing amounts to the
bank or insolvency, he’s hardly likely to pass a loan application
for purchase of property. Your lender is surely not going to
be tolerant of a bad credit record. Even if you have had a
low loan-to-value ratios and debt ratios, you cannot wipe out
a history of poor credit.
Rejection is not the end of the world: Just because a lender
rejects your loan application doesn’t mean you can never own
property in all your life. You can take corrective steps to
improve your chances of acceptance. But if you work steadfastly
at it, you can work a way round your problems. Find out why
your loan application was rejected and work towards loan acceptance.
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SolveYourProblem.com : 2007
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