5 Reasons Your Mortgage Could Be Denied

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It’s the worst case scenario when you are buying a house. Everything was going right, you found the house, you made an offer then it was accepted and the inspection went fine. Then you are denied for your mortgage.

Being denied for your mortgage is devastating, to say the least. Unfortunately, you can’t control everything, but there some things that you can do to avoid being denied.

These steps can help you avoid denial

1  Don’t fall short on the down payment

Financing through FHA programs requires as little as 3.5% down. If you get a conventional mortgage you could put down as little as 5% down. If you use VA or USDA loan you can get in with no money down, but most people don’t get these mortgages.

So if you are getting a mortgage that requires a down payment you need to know how much that will be and that you have the money in the bank. If you have the money the bank will want to see that it has been in there and not recently deposited. They call this seasoning. The exception here is if you are getting gift funds for the down payment, in which case you will need to let your loan officers know about this. Not all lenders allow gift funds for the down payment.

2 You lost, quit or changed your job

If you don’t have to leave your job during your mortgage approval, then don’t. This pretty much guarantees your mortgage will be denied. Part of the approval process is requiring that you have had a stable income for the last 2 years. They will prove this by contacting your employer before closing. Sometimes even the day of closing even after you have gotten approval. If the docs aren’t signed they can still deny you.

There are exceptions to every rule. So if you have gotten another job in a field that is in high demand and there are a limited number of people to fill the jobs this could be helpful. Or if you have gotten another job with a significant increase in salary. So for example, you are a computer engineer which is a high demand job with high openings and you get another job with a salary increase you may be good.

On the other hand if you are a manager at a clothing retailer and you move to another job for similar pay you are more likely to get denied. There’s not enough demand for people in that position and not nearly enough job openings.

3 You opened up a new account recently

Just don’t get a new car, a credit card, personal loan or anything that reports on your credit. I don’t care if it is a store card that saves you 15% on your purchase and you will just pay it off in a few weeks.

Getting any new debt that reports to your credit report could potentially change your debt to income ratios. This could cause you to no longer qualify based on these numbers. It’s better to wait a few weeks until you are closed before you do anything with new credit.

To help yourself you shouldn’t get any new credit within 6 months of applying for a new mortgage. Plus keeping the total of your monthly debt payments plus the amount of your new mortgage at less than 40% of what you monthly income is will make your ratios fall in line for approval.

4 Leave your money in the bank

Part of the approval process is giving the lender your last 2 months bank statements. This shows them that you have money and that you have money continually coming into you. Plus the funds in the bank account need to cover what you need to close with.

Don’t play with this money. Don’t move money around or do anything that would cause them to question anything. If you move any money keep it to under $1,000. If you have your money in multiple accounts you will give them copies of the last 2 months of statements for all of your accounts.

You don’t need to move the money into one account & they don’t want you to. You can get cashiers checks from multiple accounts for closing or have wire transfers from each of the accounts to the closing company before closing. This is so easy to screw up and it doesn’t need to happen. Just leave your money where it is.

5 Pay everything ON TIME

If you don’t make a payment on an account and it gets 30 days past due it will be reported to your credit report as a late payment. Even if you have the money, but you don’t pay it on time you will lower your credit score and increase your chances of getting the mortgage denied.

This doesn’t need to hurt your chances of getting a mortgage. You are in complete control of this. Watch your bills and be sure that you are paying them on time. But if you happen to fuck up you will want to wait longer to apply for your mortgage. You will need to have at least 6 months, but 12 months is better, between the late payment and the mortgage application.

These are just a few of the things that could cause you to have your mortgage denied. If you are planning on buying a home you need to truly plan. Start by contacting a lender about a year before you plan on buying. Go over what your situation is and ask them for anything they suggest that you should do for your situation.

If you have anything that could be a potential problem they should be able to help. If you start the process well in advance you will have enough time so that when you are ready to start house hunting you know that you can buy with confidence that your mortgage will be approved.