 TITLE: Why Would a Mortgage Application Get Denied? CONTENT: How Do You Qualify for a Mortgage?\n----------------------------------\nWhen assessing your mortgage application to decide if you're creditworthy, mortgage lenders consider several different factors.\n*   **Payment history**: A long record of making on-time payments to creditors on your credit report will make you a more appealing borrower in the eyes of a lender.\n*   **Credit utilization ratio**: Your credit utilization ratio reflects how much of your available credit you're currently using. A ratio of 30% or higher can harm your credit scores and indicate to lenders that you're not able to fully pay off your existing debt obligations. The lower this ratio is, the better it is for your scores.\n*   **Recent credit applications**: If you've recently made multiple applications for loans, credit cards or other types of credit, lenders may see this as a warning sign you're in financial trouble. Applications for credit will result in hard inquiries that stay on your credit report for two years.\n*   **Major derogatories**: Bankruptcies, delinquent accounts, accounts in collections, charge-offs, and accounts settled for less than the amount owed are all warning signs you may be a poor credit risk.\n*   **Authorized-user accounts**: Being an authorized user on a credit card can help you build your credit file and scores, but a lender isn't likely to view it as an indicator of your own credit management ability. The account may also work against you when the lender calculates your DTI ratio.\n*   **Dispute statements or pending disputes**: To get a clear picture of your credit history, lenders typically want to see any disputes on your credit report resolved before they'll approve your mortgage application.\nAlso keep in mind there are various types of mortgages, designed for different purposes and borrowers; each may have different qualifying requirements. Here's a closer look.\n*   **Conventional mortgage loan**: Conventional mortgage loans are not backed by government programs or government agencies. Mortgages originated by banks, credit unions and mortgage lenders fall into this category.\n*   **FHA loans**: Intended for first-time homebuyers or those with poor credit, FHA loans are insured by the Federal Housing Administration (FHA). They allow you to buy a home with a down payment of as little as 3.5% of the home's purchase price. In exchange, you'll have to pay private mortgage insurance for the life of the loan.\n*   **VA loans**: These loans for current or former U.S. military service members and their spouses are insured by the Department of Veterans Affairs (VA) and let you finance 100% of the home price, so there's no need to save up for a down payment. VA loans can also be used to build a new home, remodel or add onto an existing home.\n*   **USDA loans**: Low- to moderate-income rural or suburban homebuyers who meet certain criteria may qualify for these loans. Loans from the U.S. Department of Agriculture (USDA) don't require a down payment and are guaranteed by the government.\n*   **Fixed-rate mortgage**: As the name implies, these loans have the same interest rate for the life of the loan, so you don't have to worry about your monthly payments increasing. Fixed-rate mortgages usually have terms of 15, 20 or 30 years.\n*   **Adjustable-rate mortgage**: These mortgages have an interest rate that is fixed for an introductory period and then adjusts annually based on current market rates. ARMs usually have lower starting interest rates than fixed-rate mortgages, with the tradeoff that your monthly payments are unpredictable can increase—sometimes substantially—over time.\n*   **Conforming loan**: A loan that conforms to limits set by the Federal Housing Finance Agency (FHFA) and meets the criteria of Fannie Mae and Freddie Mac, government-sponsored enterprises that buy and administer most U.S. home loans, is called a conforming loan. The FHFA's 2020 limits for conforming loans are $510,400 or less in 48 states and $765,600 or less for Alaska, Hawaii and certain high-cost counties.\n*   **Non-conforming loan**: A mortgage loan for an amount greater than the conforming loan limit is called a jumbo loan. To qualify for a jumbo loan, you'll typically need a better credit score, bigger down payment and more assets than you'd need to qualify for a conforming loan. These loans also have higher closing costs and interest rates.\nWhat to Do If Your Mortgage Application Is Rejected\n---------------------------------------------------\nIf your mortgage application is denied, you'll receive a declination letter (also called an adverse action letter) from the lender. By law, you are entitled to a copy of your free credit report if your application is denied. The declination letter should provide instructions for getting a copy of your credit report from the credit reporting agency that was used in making the decision.\nLenders are required to tell you why your application was denied. If the declination letter doesn't specify a reason, contact the lender to ask. Most often, loans are declined because of poor credit, insufficient income or an excessive debt-to-income ratio. Reviewing your credit report will help you identify what the issues were in your case.  \nIncrease Your Chances of Getting a Mortgage\n-------------------------------------------\nDon't wait until after you receive a declination letter to learn that there's a problem with your credit. Before you apply for a mortgage, get a copy of your free credit report and free credit score to see if there are any issues that might keep you from getting approved.\nIf there are mistakes on your credit report, have them corrected. If your credit score is too low, take steps to improve your score before you apply for a mortgage. Paying down debt, demonstrating good credit habits and reducing your credit utilization can boost your odds of getting a mortgage—and of successfully paying it off. END