Most people are aware of someone who has had a negative mortgage or Declined loan experience. The mortgage loan application procedure is intricate, and mistakes can occasionally be made by both the lender and the customer. The lending process involves reviewing and inspecting a huge number of things. If any of those things don’t satisfy the loan’s conditions, they could turn a pre-approval into a decline.
There are numerous loan programs available, and each has specific requirements that must be completed. The top 5 things that can cause problems during the loan application process and eventually result in the loan.
1. Inaccurate Income:
One of the most crucial components of the loan puzzle, and, in my opinion, the main reason why loans are declined, is inaccurate income. The borrower submits a Declined loan application, and the lender obtains data on their monthly income. At this point, the lender is depending on the customer to provide accurate information.
It is crucial to confirm that the income reported on the loan application closely matches the revenue that can be confirmed on paystubs, W2s, 1099s, tax returns, and profit and loss statements. Pre-approvals are only as reliable as the data used to generate them.
2. Low Appraisal / House-Related Issues:
Contrary to popular belief, this is less frequent than you might expect. Typically, the house being acquired appraises at the appropriate value, and there aren’t any significant house-related problems that would prohibit the sale from going through. especially if the housing market continues to be robust, as it is in 2018.
A home may occasionally not appraise for the amount required to move forward. It occurs more frequently when a home receives several offers and ultimately sells for significantly more than the asking price. There is no assurance that the home will appraise for that amount, and these bidding battles enhance the eventual price of the property.
The bank will only provide money based on the appraised value, so if the home appraises for less, either the seller must reduce the asking price to meet the assessment otherwise the buyer will need to put additional money down. Due to a low assessment, this could lead to a scenario where the buyer lacks the resources to make up the difference in value, and the transaction collapses.
Another problem that could arise is if a house has significant flaws that are highlighted in the appraisal report and put the buyer’s health and safety in danger. The loan application may be rejected owing to the collateral and the dangers it poses if these health and safety hazards are not addressed and followed up on with a final inspection.
3. Addition of New Debt During the Loan Process:
This is something the lender has no control over and is easily manageable. Although not everyone does so, the majority of individuals avoid applying for new credit cards, auto loans, or personal loans. Applying for new accounts like these is a bad idea because it can result in a debt-to-income problem and a Declined loan denial.
For instance, if the maximum debt-to-income ratio for the Declined loan you qualify for is 45 percent and your ratio was 44 percent before the loan application process began, taking on extra debt could push you over the 45 percent limit and result in a decline.
It’s advised not to submit any applications while buying a house. Don’t jeopardize your preapproval or approval. You can investigate the viability of applying for any new debt after your loan closes.
4. Employment loss:
Although it’s rare, it can happen. There will be a decline if you are in the middle of the loan process and you end up losing your job since you no longer have enough income to match the loan program’s requirements. If you don’t have any revenue coming in, it can be challenging to meet your payments.
Things might still be salvageable if the borrower can find work during the loan procedure and their income doesn’t substantially change, which would affect their capacity to repay the Declined loan. The length of time spent working is less of an issue when one remains in the same industry or profession and holds the same position as before. Keep your employment if you can, and if you want to move ahead to a different firm, wait until after your loan has closed.
5. Non-Verifiable Funds:
In this case, it is impossible to determine whence the money originated. For the income or down payment monies to be used in the Declined loan, there must be a paper trail.
Always remember that everything must be properly sourced to ensure that the money is genuine and not the result of money laundering, drug trafficking, or terrorist activities. Money must come from a source that can be proven by providing supporting paperwork, such as an account.
In conclusion, having access to a loan is just as crucial as being prepared to use it when you need it. If your loan application is turned down once, it will appear on your credit report and make it harder for you to obtain money in the future. The aforementioned points should be kept in mind, and you should only apply for a loan when you are certain that it won’t be denied. It is preferable to make improvements before applying if you feel that you fall short of any of the criteria.
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