Do You Know Why Banks Say No?
Are you looking for a new home or rental investment? Before you go to the big banks for a loan, check out these little-known reasons why banks decline mortgage applications.
Homeowners Association (HOA) issues. Buying a property that is part of an HOA can be a wonderful way to keep your neighborhood in great shape. But banks will look at how an HOA affects property value—and raises your debt-to-income ratio. If the HOA’s monthly fee is high, it can reduce the amount of money a bank will loan you, or you could be denied entirely. Do your homework. Know your debt-to-income ratio and the HOA fees at the property you are interested in.
No rental history. Here’s something most people don’t realize: rental history verification isn’t a requirement for mortgage approval. That being said, lots of lenders do look at rental history to see if you have one, or if you have defaulted on your rent payments. And while most landlords don’t report someone consistently paying their rent on time, they will report a delinquent payment—and this can affect your credit.
New or closed credit accounts. Opening a new credit card account can temporarily lower your credit score. If you do this prior to applying for a mortgage loan, this could affect your rate. Closing an account doesn’t necessarily hurt you—unless there is a history of delinquent payments. Keep in mind that your payment history doesn’t disappear once you close an account… it’ll stick around for years.
Spouse has a low credit score. If your spouse has a poor credit score and you jointly apply for a mortgage loan, it could be denied. Banks look at both applicants’ credit histories and factor in both scores when determining a rate and approval.
Co-signing on other loans. This goes back to your debt-to-income ratio. Banks look at how much debt you have compared to your income and then base their approval—or denial—on that number. If you co-sign on another person’s loan, this is considered taking on more debt. It could affect your chances of getting approved for a mortgage.
Check out our other tips on preparing for the mortgage loan process. And remember, Brad—if you’re having a hard time finding a bank to support you, we have more options that can help you out. Get pre-approved with us today.