Some borrowers think that because their mortgage application is turned down the first time, they won’t ever be approved. In reality, some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.
Making sense of the story
- Before reapplying for a mortgage, borrowers are advised to look at the reasons they were initially rejected.
- The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing within 30 days of their decision. If it’s based on a problem in the borrower’s credit report, the lender must tell the borrower the name and address of the credit agency that provided the information.
- Talking to the loan officer who denied the application to see how close the borrower was to being approved also can be helpful. Sometimes the gap is small and could be bridged with a larger down payment or another home appraisal, for example.
- It also may be worthwhile to shop around for other lenders. Borrowers can work with a mortgage broker or an online network like LendingTree or Zillow’s Mortgage Marketplace.
- A credit union also might be a better bet for some applicants. Credit union loan committees may permit better deals for longtime members; they might also modify loan terms for borrowers they already know.
- However, first-time buyers may need to scale back their aspirations. One reason people get turned down for a mortgage is because they try to buy more property than they can afford based on current incomes.
- Applicants also should look at ways to strengthen their financial picture. If a borrower’s credit is poor, paying down credit-card balances can help to increase a FICO score.
Read the full story
http://www.nytimes.com/2011/10/16/realestate/mortgages-what-to-do-after-an-application-is-rejected.html?_r=1&ref=realestate
Last year, more than two million people were turned down for homes, according to federal data, often because the applicants didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic. With lenders’ underwriting criteria becoming more rigorous in recent years, it’s important buyers know the most common triggers for mortgage-loan rejection.
Making sense of the story
- Insufficient income: Lenders want to be sure borrowers can afford to make the mortgage payments. Lenders typically look for at least a two-year track record of income, which could hurt those who have changed jobs recently.
- Cloudy financial picture: Generally, total debt payments, including the mortgage, cannot exceed 45 to 50 percent of a borrower’s adjusted gross monthly income. Overtime and bonuses are included only if the borrower has worked for the same employer at least two years, and has a history of receiving them.
- Poor credit: Lenders typically reject applicants with FICO scores below 620.
- Low appraisal: One of the predominant reasons buyers are turned down for home loans is because the appraisal on the property is too low. A buyer may think he or she is purchasing a house worth $800,000, but if the appraisal comes in less than that, the lender will not loan the borrower the money.
- Property problems: Sometimes issues turn up within a house, like a major repair or safety issue that needs to be addressed, before an application can be approved.
- Information mix-ups: Approximately 12 percent of new mortgage applications were denied because of unverifiable information or incomplete credit applications, according to the Federal Financial Institutions Examination Council.
Read the full story
http://www.nytimes.com/2011/10/09/realestate/mortgages-triggers-for-rejection.html?_r=1&ref=realestate
Strategic default has become an urgent and costly problem for lenders. University of Chicago Booth School of Business studies indicate that roughly 35 percent of mortgage defaults are strategic, and FICO estimates this makes strategic defaults more than a $20 billion problem annually.
FICO Labs researchers announced earlier this year that they had developed a method for predicting which borrowers are at greatest risk of strategic default, focusing especially on the six million U.S. homeowners with current-loan-to-value ratios of 120 or higher, making them twice as likely to consider defaulting on their mortgage. FICO’s strategic default prediction algorithms are now being employed by four of the 10 largest U.S. mortgage servicers. FICO estimates the collective benefit of its solution for these servicers could reach $2 billion in the first year.
Additional information on FICO’s strategic default research can be found in the white paper “Predicting Strategic Default,” available for free at www.fico.com/Insights.
More info
Well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes impacting their credit reports and scores, according to mortgage bankers and real estate agents.
MAKING SENSE OF THE STORY FOR CONSUMERS
- Nearly 14 million Americans have errors on their credit report due to medical collections, according to the Commonwealth Fund, a non-profit organization focused on health care research.
- Unnoticed credit errors, such as small, unpaid balances on medical bills, can make refinancing a mortgage difficult or, in some instances, impossible. If approved for a refinance, unpaid bills can result in the borrower paying higher closing costs.
- It is critical that consumers routinely review their credit reports to ensure the reports are accurate and up-to-date. Consumers are entitled to one free credit report annually from https://www.annualcreditreport.com/cra/index.jsp. The report does not include the credit score; however, the score can be obtained for a small fee.
- The U.S. House of Representatives passed a bill this fall that could provide relief for homeowners with medical-debt troubles. The Medical Debt Relief Act, which is currently in the Senate, would remove settled medical debt from credit reports after 45 days, instead of the customary seven years.
Read the full story
If you’re thinking about buying a home, you know it’s more
important than ever to have a high FICO score. Several
components make up your score. What steps would you take to bump
it up? How would you even know where to start?
Read the full story:
http://takeaction.realtoractioncenter.com/ct/47AK8Md1HUvV
