A mortgage loan application can feel like an IRS audit: tons of paperwork and a thousand questions about your finances. Unfortunately, even when you think you've done everything right, you could be one of the 8.3% of applicants who are denied a loan. This can leave you wondering why your mortgage loan was rejected.
GOBankingRates asked mortgage lending experts to run down some of the main reasons applicants get denied so you can find out how to avoid them. Read on to learn more.
Lenders like job stability, so you'll need to stick around for at least two years
If you have no seasoned, open credit of your own, you might get denied for a mortgage loan even if you're an authorized user on someone else's account.
Paying off old debt can actually lower your credit score under older scoring models. This happens if the collection updates to "paid" with the current date instead of the date the collection was last reported.
If your home appraises too low, the lender can reduce the amount you'll be able to borrow.
Any unpaid judgments or federal or state tax liens will come up during a title search, which is done right before the house closes. If you cannot pay these, the title company will not be able to close on the loan.
"Many people work very hard to save and retire early but have little income," said Mark Ferguson, a real estate agent and the founder of InvestFourMore. "Because they have little income, lenders will not want to give them a new loan."
Lenders are required to either monitor your credit for new inquiries or pull a new credit report the day before closing.
Gifts are an acceptable source of down payment money. So some people are turning to crowdsourcing options like GoFundMe accounts to help finance their home purchases. Unfortunately, those crowdsourcing options won't work.
Child support or alimony could impact your mortgage loan approval odds, since they are mandatory monthly expenses and are also considered in your debt-to-income calculation.
Lenders will use net income from tax returns after business expenses are deducted, so you may want to double-check whether or not your net income will still qualify for the loan.