Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.
Want to avoid falling into that number? It’s tough — especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse’s credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income — all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn’t appraise. Since the whole industry had its hand (among other things) smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up — some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home. (If you’re trying to refinance an upside-down mortgage, consider the FHA Short Refi program — contact your lender or get referrals to any mortgage broker who makes FHA details to apply.)

5. Condition problems. With all the distressed properties on the market, and with most nondistressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

Need a mortgage? Apply today at: http://www.pickrandall.com/apply.php

Have a great day!
Randall

Federal Reserve Chairman Ben Bernanke spoke before the Joint Economic Committee of Congress last week about what he sees as our true economic outlook. In this statement he avoided sugar-coating worrisome trends and instead made clear that “the recovery is close to faltering.”
According to Bernanke, it has been three years since the beginning of the financial crisis, and while there have been improvements, such as manufacturing production rising 15 percent, a reduced U.S. trade deficit, and improved functionality in financial markets and banking, it is clear that the recovery is “less robust” than experts had hoped.

Bernanke noted, “The housing sector has been a significant driver of recovery from most recessions in the United States since World War II. This time, however, a number of factors–including the overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of “underwater” mortgages (on which homeowners owe more than their homes are worth)–have left the rate of new home construction at only about one-third of its average level in recent decades.”

In a slice of good news, however, private residential construction spending has risen 3.9 percent year over year, making for the fourth month of consecutive gains (0.7 percent gain in August) and the largest percentage gain since June of 2010.

The National Association of Home Builder’s Eye on Housing reports, however, that “demand for new homes remains hampered by significant competition from distressed sales, tight lending standards and a weak labor market.”

Pending home sales, according to the National Association of REALTORS®, slipped in August, down in all regions. Lawrence Yun, NAR chief economist, said the decline reflects an uneven market. “The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August,” he said. “But broadly speaking, contract signing activity has been holding in a narrow range for many months.”

Yun said the market is underperforming given a pent-up demand in household formation. “We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit – a factor in elevated levels of contract failures,” he said. “Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing-home sales closer to 5.5 million, but are expecting just over 4.9 million this year. The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy.”

The good news for jobs? We are entering the holiday season and many of the nation’s top retailers are reporting they are gearing up for seasonal hiring. The New York Times reports, “Even with a turbulent economy, leading retailers say they expect to hire more, or at least as many, holiday workers as last year, when temporary hiring for Christmas grew nearly 50 percent over recession lows.”

Kohl’s is set to add 40,000 new hires. J.C.Penney plans on adding 35,000 and Target plans on hiring 92,000 holiday workers.

This is welcome news as Bernanke reported that the most significant factor depressing consumer confidence, even more so that reduced household wealth, home price declines, and high debt burdens, has been the poor performance of the job market.

Need a mortgage? Apply today at: http://www.pickrandall.com/apply.php

Have a great day!
Randall