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Reasons A Loan May Not Be Approved
There are several common reasons why lenders deny a loan application.
- Poor credit report - A negative credit report generally indicates
that the homebuyer has not established a good credit history. Your first step
should be to verify that the credit information issued to the lender is
accurate. Ask to see a copy of your credit report that the lender received, or
obtain a copy of your credit report yourself from your local credit bureau.
In addition, consult with a local
HUD Housing counseling agency
to determine what steps you can take to restore your credit to an acceptable level. Depending on your
situation, rebuilding your credit may only delay your home purchase for a short time.
- Not enough income - Your ability to pay off a loan is reflected in
your current earnings and your future income potential. Lenders may decline a
loan if the homebuyer does not meet the income requirements or cannot show proof
of stable income. It is to your advantage to establish a consistent and stable income.
- Too much debt - If your existing debts (credit cards, car loans, student loans) exceed the
debt-to-income ratio
for the loan, determine if you can pay off some of your debts before you apply for a mortgage. If you have credit
cards you don't use, cancel them. Inactive credit cards are still considered
potential debt. For more assistance with debt consolidation or other credit needs, contact a
HUD Housing Counseling agency.
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