Lots of mortgage lenders closing and losing money leads to a natural reaction--credit tightening. In simple language, that means less people getting approved for mortgage loans. This might surprise you as your surf the Web and are barraged with dancing cowboys, incredibly low payment teasers, and grinning borrowers in every corner. It seems everyone gets a great mortgage and an affordable payment--why not you?
As the mortgage market has deteriorated the sound of "no" is ringing in the ears of a lot of potential home buyers and homeowners attempting to refinance. What can you do if a bank says no to your mortgage application?
You actually have more options than you might imagine. The key is first preparing and then taking charge of the application process. Here are some tactics to improve your chances of getting a "yes" on your next mortgage application.
Wait and Prepare
While it is probably not the first solution you wanted to hear it is probably the best advise for success. The mortgage lending market is in an unprecedented amount of turmoil. This is making lenders hesitant and stingy with approvals. However, mortgage lenders and their investors need to make money, which they do by lending you money to buy or refinance a home--so this environment will pass.
If you do elect to wait until applying again or you are just now thinking about applying use your time wisely. This is a perfect time to work on your credit score. Your credit is the single largest determinate of approval on any mortgage application. It also drives the your interest rate and mortgage payment. Time spent on getting a copy of your credit score, contesting errors, reducing debt, and increasing your savings will save you money and get you approved faster.
Another advantage to waiting is the willingness of the US government to provide assistance to the current mortgage crisis. The recent Housing Bill that passed in July and that goes into effect in October 2008 will open up a lot of FHA and HUD backed mortgage options.
Ask for a Government Backed Loan
Learn about all of the government backed loan options and how to qualify. These government assisted loans are increasing daily. Traditionally their stringentguidelines are beginning to loosen to help more homeowners make the cut.
HUD and its companion agency, FHA are centerpieces to the governments housing recovery strategy. That gives you opportunity.
These government backed loans are mortgages given by your local banks and lenders, but they are insured or backed by government agencies like HUD, FHA, and government sponsored entities like Fannie Mae and Freddie Mac. This presents the lender with almost no risk to lend you money--you just need to know how to qualify.
Find a More Affordable Property
Outside of credit qualifications the next biggest declination reason is asking for too much money. The natural fix to this problem is to simply ask for less. In most markets that may have meant downsizing your dream home or foregoing a refinancing. However, we are in different times--you have many more options.
If you are not set on a home really search out the market. The housing market, in any location, is currently flooded with foreclosures and people willing to take a short (loss) sale. So, dig into theMLS system and watch your local paper for "sheriff sales" for bargains.
If you already have a property picked out, ask the seller to take less. You will be surprised how eager they may be to oblige a motivated buyer.
If you are attempting to refinance and your house is no longer worth enough to support a refinance, ask for a loan modification. You may be able to reduce your interest rate and get a more affordable payment without even changing your lender to refinancing. This is especially promising approach if you have an interest rate that is adjusting.
Ask for an Exception
Exceptions, believe it or not, are approved everyday. However, they do require the lender and the mortgage application processor to do more work. Your best opportunity to be granted an exception is largely dependent on how easy you make it for them. Prepare your case.
Pull together all of your documentation into a clear easy to review package. Show support for income, savings, gifts, explanations for any derogatory information on your credit report.
Your goal in this package is to provide documented answers to all of your lenders questions--especially questions focused on ability to make the monthly mortgage payment and why you may have (for a short period of time) missed some credit payments in the past. Often this package needs to explain unexpected medical expenses, divorce, or job loss.
Get Another Opinion
Not all lenders are the same when it comes to approving mortgage applications. You have a lot of options from banks, to credit unions, to mortgage brokers--shop around. Each will have slightly different rates and approval guidelines. Like any other large financial decision you should survey several different opinions--even if you get turned down.
Again, the key to making this process smooth and increasing your probability of success is preparing a simple, well organized package to submit and review. Have all of your documentation assembled and at your finger tips.
Add a Co-Borrower
If income is the problem, maybe two is better than one. The lender is trying to get comfortable that you will make your monthly payment. If you alone do not make enough you may simply need to add a spouse, family member that lives with you, or a domestic partner to the loan application. Showing the combined income and capacity to pay the monthly mortgage could make you a shoo-in.
Add a Co-Signer
Although co-signers are popular options on smaller loans, such as auto loans, unsecured loans, and student loans, on mortgages they are rare. However, if you have someone that trust you enough and is willing to shoulder the burden your mortgage it may be an option. It never hurts to ask.
Getting your mortgage application approved is much like navigating any bureaucratic process--it is about knowing the system and how to check the right boxes. The more knowledge you go into the process with and the easier you make it on the loan processor the higher you probably of success.
So, gather your documents and your support to make your case that you are the best mortgage applicant on the market and you are sure to hear "yes" on your next attempt at applying for a home loan.