- Low credit score, low initial payment capacity or even getting a new job are some of the reasons why you could be denied a mortgage loan in the US. At Globe Live Media we tell you all the reasons why you would be denied a mortgage, so that you avoid them and can fulfill your dream of getting a house
Not all people in the United States have access to the mortgage loans they need to buy a home. In fact, the most recent mortgage data, published by the Consumer Financial Protection Bureau (CFPB), revealed that during 2020, 16.1% of applications for mortgage loans in the US were denied. It should be noted that 21.9% of these rejections were made to Hispanic Americans.
At Globe Live Media we have compiled the five most common reasons why a bank or financial lender could deny you a mortgage loan in the United States, so that you can address these points and obtain the resources you need to fulfill your dreams.
1- Low credit score
The minimum credit score required to get approved for a mortgage loan often varies depending on the issuer and their financial policies.
According to the credit reporting company Experian, a minimum FICO score of 620 is generally required to obtain a conventional mortgage loan or a loan from the Department of Veterans Affairs (or VA loans, as they are known in English).
For loans from the United States Department of Agriculture, which are intended for those who plan to acquire real estate in rural areas, a score of at least 640 is generally required.
Data from the Federal Reserve indicates that the average credit score of those who are going to apply for a home loan is 786.
Federally backed loans (known as FHA Loans) can serve those with low credit scores. However, these types of loans require higher initial payments.
2- Lack of credit history
If you do not have a strong credit history (which means having credit cards or personal loans), lenders will not have evidence of your ability to pay, so they may need to deny you your loan due to the risk involved.
Therefore, it is convenient that, if you plan to apply for a mortgage loan soon, you start taking steps in the direction of building your credit history.
3- A high income-debt ratio
Usually, lenders review your ability to pay the mortgage loan based on your income-debt ratio, which determines how much percentage of your income is used to pay different financial commitments.
According to Experian, if your mortgage payments amount to 28% or more of your monthly income, your mortgage will likely be denied.
4- Low initial payment capacity
If you offer a very low down payment, the lender may not be entirely convinced of your ability and commitment to pay off your mortgage debt. The larger the down payment you can afford, the more likely the lender will approve the mortgage.
5- Recently changed jobs
If you just got a new job, the lender may deny you the mortgage loan. The reason for this is that the issuers of these types of loans consider stability as an important factor when giving their approval, which includes financial stability (consistent income) and job stability.
Although not an explicit requirement, creditors tend to approve more loans to those who have had the same employer for at least two years, according to data from Rocket Mortgage.
Other aspects to take into account that could cause you to be denied the mortgage loan
Having good credit and a solid income is useless if your mortgage loan application doesn’t include all the financial information that allows lenders to approve your application. To do this, thoroughly review your application before sending it to the lender, to avoid any type of error.
On the other hand, if lenders consider the home you want to buy to be a bad investment, requiring, for example, too many repairs, they are likely to deny your application. Do not take this personally, as it is even possible that this rejection is for your benefit.
Also, remember that lenders will review your accounts, so any unusual movement or operation (such as an extraordinary deposit of money) can set off alarms that could harm you as a borrower.