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Five Surprising Reasons for Mortgage Application Rejection

Five Surprising Reasons for Mortgage Application Rejection

Unless you’re among the one-third of homebuyers who can purchase a property with cash, you’re going to need a mortgage approval before you can secure your next home. While a good credit rating can make the process much less stressful, most homebuyers still experience a nagging worry that their application will be rejected even after they’ve dotted and crossed those metaphorical I’s and T’s. Fortunately, forewarned is forearmed. Talking to your trusted mortgage or real estate professional about the reasons—even these surprising ones—borrowers are turned down for loans can help you prevent unforeseen issues from derailing your home purchase.

  1. You’re a job hopper.

Mortgage lenders love borrowers who demonstrate stability. Unfortunately, frequent career changes tend to make you look like anything but an acceptable risk. If you’ve been thinking about looking for a new job, consider postponing your search until after you’ve closed on your loan. Lenders generally prefer borrowers who have been in the same position for at least two years.

  1. You’re retired.

If you were able to retire before the age of 65, congratulations! Most everyone will acknowledge that required hard work and diligent saving and investment efforts. However, depending on your retirement income, it may not endear you to mortgage lenders. They want to see enough earnings—whether from a traditional job, self-employment or investments—to ensure you’ll be able to meet your mortgage obligations.

  1. You recently made a big purchase with credit.

Maybe you just leased a new car. Perhaps you opened a Care Credit card to finance your child’s orthodontics or Lasik surgery for your spouse. While these are all sensible actions under most circumstances, mortgage lenders don’t want you to increase your monthly debt obligations in any way during the months leading up to your home purchase. To best improve your chances of securing a loan, avoid all non-essential purchases until after you’ve closed on your new home.

  1. You’re buying a condo.

While plenty of mortgage lenders make loans for condo purchases, those who want to sell those loans to government-backed Fannie Mae and Freddie Mac will only do so if the condo complex meets certain standards. This includes a certain level of owner occupied units. If too many are investor-owned and occupied by renters, your mortgage application may be rejected. The same goes for FHA loans. If the condo you want to buy is not on the FHA-approved list, you’ll be turned down for a mortgage.

  1. You’re not borrowing enough.

Believe it or not, sometimes a sizeable down payment can actually result in an application rejection.  Lenders make money on interest and many set mortgage minimums. If you’re buying a $150,000 home with a $75,000 down payment and your lender’s minimum loan amount is $100,000, you may have to go elsewhere to secure a mortgage or agree to borrow more.