Homeowners looking to apply for a mortgage loan are always plagued by the possibility that their mortgage will be rejected. And according to some, mortgage rejection rates are higher than before. But there are many reasons for higher rejection being bantered about by the pundits. Can homeowners really protect themselves against mortgage rejection, or is it out of their hands entirely?
There are several common reasons a homeowner can be rejected for a mortgage. These include having too much debt, not having a down payment and having a credit score that’s too low. Where these are the case, a homeowner can do some things to improve their situation. They can pay down their debt and submit a second application, save up enough money for at least a partial down-payment on a home and take the necessary steps to improve a bad credit rating.
Is It The Banks?
A recent article suggests that there
may be more to mortgage rejection than the situation of applicants. Market Watch reported that the ten largest mortgage lenders had a mortgage rejection rate of between 11 to 34 percent in 2012. And some banks had higher rejection rates than others.
This has led to much confusion among home buyers, who may have to jump through many hoops in order to qualify. Some lenders will actually require that many more hurdles be overcome that what the Federal guidelines require. This can cause a homeowner to have a higher chance of being rejected by one institution than at another.
Although these extra hurdles were put in place back when the housing crisis was in full swing, many lenders continue to hang onto them. And this is despite the fact that the rates of mortgage rejection have significantly declined since the housing crisis. But experts say that lenders are doing this in order to avoid being hit with any new losses.
There may even be factors affecting mortgage rate rejections that are out of a bank’s control. For example, an institution which received a large number of borrowers having low credit scores may be automatically at risk of higher rejection rates. The same is true when one lending institution merges with another. Often, when a merge occurs, the new owner gets the clients of the old. And if those clients happen to be made up of largely homeowners with subprime loans, higher rejection rates could be the result.
Casting a Wide Net
Because multiple mortgage applications can hurt your credit rating, and considering the many factors that can influence mortgage rejection rates, many experts are advising homeowners to cast a wide net when looking for a home loan. They are advised to not only contact each lender individually, but speaking with the mortgage brokers who work with them to ask if they can give some insight as to approval chances.
Solutions Following Mortgage Rejection
The most important thing homeowners should remember is that, just because they’ve endured one mortgage application rejection, doesn’t necessarily mean that this is the way things will always be.
One possible solution is to try and qualify for a mortgage with a higher rate than the one you originally applied for. It may help to make you look like less of a risk to your bank, which could increase your chances of approval.
Another potential solution is to get a second opinion. This can mean going to a different bank, or even a different type of bank, such as a credit union. Going to a smaller bank may also help, as sometimes these ‘hometown institutions’ are more flexible with their mortgage loan terms.
About the Author: Guest author Tony Donovan writes on a variety of topics related to the mortgage industry, including how to go about researching a Los Angeles refinance home mortgage.