WASHINGTON – Oct. 10, 2011 – Credit has gotten tighter, and more buyers are being left out – or becoming so frustrated they give up. Last year, more than 2 million people were turned down for mortgages, according to the Federal Financial Institutions Examination Council.
About 30 percent of buyers are either denied a mortgage, or they drop out of the application process, the Mortgage Bankers Association estimates.
Biggest reasons for rejection:
• Insufficient income: Buyers cannot afford a $1 million home if they make $50,000 per year.
• Credit details. There are a lot of rules, and it’s not easy to understand what a bank wants. Overtime income, for example, only counts if documented for at least two years to some lenders. Rental income may only count if the borrower has a 30 percent equity stake in the building.
• Bad credit. If a credit score is somewhere around 620 to 660, depending on the bank, lenders say no almost automatically.
• Appraisals. If an appraisal is lower than an agreed-upon selling price, the lender balks.
• External problems. A lender could nix an application if the homeowners’ association has issues or the neighborhood has problems.
• Incomplete information. Paperwork problems – incomplete information, missing forms, etc. – bog down about 12 percent of applications.
And “it’s common to get turned down if you have a gap in employment history over the last two years,” says Erin Lantz, director of the Zillow Mortgage Marketplace.
Source: “Triggers for Rejection,” The New York Times (Oct. 6, 2011)
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