5 Reasons Why You Didn’t Get Approved For Your Mortgage And How To Fix Them

When you’re in the market to purchase a home, one of the most critical steps in the process is getting approved for a mortgage. Unfortunately, not everyone who applies for a mortgage gets approved, and there are many reasons why this may happen. In this blog, we will discuss the top reasons why someone might be denied approval for a mortgage and provide solutions to correct those reasons.

#1 – Poor Credit Score

A credit score is one of the most crucial factors that lenders consider when approving a mortgage. If you have a low credit score, you’re more likely to be denied approval. A credit score of at least 620 is usually required to get approved for a mortgage. If your credit score is lower than this, you may want to work on improving it before applying for a mortgage.

Most lenders require a minimum of 620 credit or 680, but if you do have a lower score, there are some options we have access to here at JR Mortgage Group as a broker that other Banks and Credit Unions do not that have helped us get new homeowners into their new home with credit scores as low as 500.

Solution: The best way to improve your credit score is to pay your bills on time, keep your credit card balances low, and avoid applying for new credit. If you have any outstanding debts, try to pay them off as soon as possible. You can also work with a credit counselor to create a plan to improve your credit score. Here is more information on improving your credit score. 

#2 – Insufficient Income

Solution: If your income is insufficient, you can consider finding a co-borrower or a co-signer with a higher income. A co-signer is someone who agrees to take equal responsibility for the mortgage payments and any associated fees and penalties if the borrower is unable to fulfill their obligations. A co-signer with a higher income and a strong credit history can help strengthen the borrower’s application and increase their chances of approval. Here’s more information on co-signers and co-borrowers.

#3 – Employment History

Mortgage lenders want to ensure that borrowers have a steady and reliable income source to repay the loan. Lenders usually evaluate the borrower’s employment history, job stability, and income stability to determine their ability to make timely mortgage payments. If a borrower has a history of frequent job changes, gaps in employment, or irregular income, the lender may consider them to be a high-risk borrower and deny their application. According to the Consumer Financial Protection Bureau, a borrower typically needs to have a two-year employment history to qualify for a mortgage.

Solution: If you have a history of job-hopping, try to stay at your current job for at least two years before applying for a mortgage. If you’ve been unemployed, try to get a stable job for at least six months before applying for a mortgage.

#4 – Down Payment

A down payment is the amount of money the borrower puts towards the purchase price of the property, with the rest of the funds coming from the mortgage loan. A small down payment may make it more difficult for someone to get approved for a mortgage because it increases the lender’s risk of default. If the borrower puts down less than 20% of the purchase price, they may also be required to pay for mortgage insurance, which can increase their monthly payment.

According to data from the National Association of Realtors, the average down payment for a home purchase in 2021 was 12%, down from 16% in 2018. However, the size of the down payment required can vary depending on the type of mortgage and the lender’s requirements. For example, conventional mortgages typically require a down payment of 3% or more, while FHA loans may require as little as 3.5% down. VA loans and USDA loans also offer options for low or no down payment. Ultimately, the size of the down payment required will depend on the borrower’s financial situation, the type of property they are purchasing, and the lender’s requirements.

Solution: You can save up for a down payment or consider other options, such as down payment assistance programs or borrowing from your retirement account. Additionally, talking to a loan officer about the type of loans you might qualify for can give you an idea of how much you’ll need for a down payment. Check out this blog post to see if you might be eligible for only a 1% down payment.

#5 – Property Issues

The lender’s primary concern is ensuring that the property is worth the loan amount and that they can recoup their investment in the event of default. Property issues, such as outstanding liens, unresolved title disputes, or structural defects, can make it difficult for the lender to sell the property if the borrower defaults. As a result, lenders will often require a clear title and a thorough property inspection to minimize their risk.

According to a report by the Consumer Financial Protection Bureau (CFPB), property-related issues are one of the most common reasons for mortgage denials. The report found that in 2019, 12.5% of mortgage applications were denied due to property-related issues. Of these denials, 35% were due to issues related to the property’s value, 27% were due to title issues, and 21% were due to other property-related issues such as zoning or environmental issues. These statistics illustrate the importance of ensuring that the property you wish to purchase is free of any potential issues before applying for a mortgage.

Solution: First, you can negotiate with the seller to resolve the issues before the sale, such as clearing up any liens or resolving title disputes. Secondly, you could seek alternative financing options, such as a private mortgage, which may be more flexible in their requirements. Additionally, you might consider finding a co-signer with stronger credit and financials to help secure the mortgage. In some cases, you may need to look for a different property if the issues cannot be resolved. Ultimately, it’s essential to work with a reputable real estate agent and mortgage broker who can guide you through the process and help find the best solution for each unique situation.

Conclusion

Getting approved for a mortgage can be a complicated process, but understanding the reasons why someone might be denied can help you avoid these pitfalls. If you’re unsure about the mortgage approval process or need help with any confusion, it’s always a good idea to reach out to a mortgage broker. Here at JR Mortgage Group, our loan officers are ready to help guide you through the application process.