by Lee Nelson
It feels like you gave your lender every piece of information and documentation of your financial world that you possibly could. You feel like you have no secrets left. But even after all of that, your mortgage application was denied.
The mortgage experts say not to despair. With more stringent rules and standards that have come after the mortgage fiasco a few years ago, banks are turning down more loan requests than before.
If you have been turned down for a mortgage, it’s time now to revisit why the lender rejected your request for a home loan, keep your emotions out of the picture and then fix the things that stopped the mortgage from going forward.
“Understanding the factors that influence the credit decisions made on your behalf will empower you to better control your financial well-being and take the necessary steps to address any of the factors,” says Demitra Wilson, senior director of public relations for Equifax Inc., one of three largest consumer credit reporting agencies along with Experian and TransUnion.
Check with MyMortgageInsider here if you’ve been denied. We may be able to help you.
The best move to take after a loan rejection is to get the information you need to know your credit situation and start talking with your lender and your creditors.
The things that could go wrong on your credit history are as simple as someone inputting the wrong information or someone with the same first and last name having their credit histories combined with yours. It happens more than people want to admit.
“Your Equifax credit file includes identifying information, trade line/account information inquiry information, public record and collection information. Information in these categories could potentially be inaccurate,” Wilson says. “If you believe that any item of information contained in your credit file is incomplete or inaccurate, you can notify us directly. We will investigate the item free of charge.”
She adds that you can notify any of the three credit reporting agencies directly to dispute inaccuracies on your credit file. All of them also offer information on their websites about the dispute process.
Victor Wikstrom has been a mortgage underwriter in Tampa, Fla, for more than two decades and most recently was assistant vice president with Bank of America. He said that many loan companies just send out a generic letter to people when their application is turned down with the reasons it was rejected. Some companies actually make the phone call to their customers to tell them the reason or reasons why the application was denied and to guide them on how to fix it.
“I’ve been looking at credit reports for 25 years now. You could have a perfect credit score, but the credit report will still give me four reasons to turn down your loan,” he says. “You just really need to talk with a person about why you were declined. It could be something really small that can be fixed. Or it could be something that was put on your credit report that wasn’t yours.”
For instance, someone with a common name such as John Smith might find all kinds of things wrong on his credit report.
“All it takes is somebody inputting something incorrectly. It is possible that your credit file has been merged with someone else’s. If you and your dad have the same name but different middle initials, his stuff could be on your credit report,” he says.
But Wikstrom adds that most people never look at their credit report before applying for a mortgage or car loan. They think everything will be fine, but it isn’t always fine.
“Being denied for a loan can be very educational. People learn from it. Sometimes, they learn that the value of their home just isn’t there, and the lender can’t give them a loan to refinance,” he said.
He saw this many times during the big frenzy to refinance. People thought their homes were worth more than they really were, and the banks just couldn’t help them until the values increased. Low appraisals have hurt many purchases and refinances through the years.
Sometimes when lenders go through your bank statements, they might find bills that weren’t disclosed. For instance, you might have borrowed some money from a relative or friend, and now you have to pay $200 a month for the next couple of years. If they see that payment consistently in your bank statements, and you never mentioned it during the application process, that sends up a red flag and can get your application thrown out.
Wikstrom says that when applications are entered in the branch level of a lending company, hopefully, they will catch problems upfront. That’s where you get the automatic decline letter. This is the level where they see that the credit score is fine, and the income-to-debt ratios are fine.
If they say right away that your debt-to-income ratio is above their limit, you can try to find another lender that allows higher ratios, he says.
But there are still other things that come along in the process that can pop up, he says. Twenty percent of people get declined right away for a loan for one reason or another.
“You need to get a copy of your credit report. See what’s wrong, and call and talk to someone at the reporting bureau. Go over everything. Some companies now even have a live chat online to help customers,” he says.
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Lee Nelson writes for national and regional magazines, websites, and business journals. Her work has appeared in Yahoo! Homes and many Hearst publications such as Life@Home and Women@Work.