How to Find a Home Purchase Loan when your Mortgage Application was Rejected

Just because you have been refused financing by one lender does not mean that you have to give up hope altogether of moving into your dream property.

This is particularly true for those who are looking for jumbo or extra-large mortgages who do not necessarily have the provable income, credit score or size of down-payment required to meet conventional mortgage approval requirements.

Jumbo mortgages are usually loans over $417,000 which are exempt from the strict government standards that must be enforced for more conventional sized lending.

Credit unions and smaller banks in particular usually have more flexibility to qualify individual clients applying for larger loans because they hold jumbo mortgages on their books or sell them as mortgage-backed securities to investors.

According to the Mortgage Bankers Association, more lenders are now offering jumbo mortgages to borrowers looking to buy high-end properties.

Why was your mortgage application rejected?

First, don’t despair because being turned down for a mortgage is far from uncommon and will not be reflected on your credit report.

In fact, about one seventh of borrowers looking to finance a new home and just under a quarter of applicants looking to refinance their properties were refused financing in 2013.

If your mortgage application was rejected you probably received an “adverse action notice” or statement from the lender explaining why you were turned down for financing.

There could be many reasons for this but the most common are poor credit history, a high ratio of debt compared with income (which reflects on how feasible it is for you to make the required monthly payments) and lack of collateral (or ‘reserves’ as they are also known).

If you were rejected for a jumbo loan it is highly probable that you have a somewhat volatile income – perhaps one that is based on bonuses or commissions (for example the financial sector) or perhaps you have moved to a new job recently.

So, what can you do to make your next mortgage application more successful?

1. Get a guaranteed compensation plan from your employer so that you can show written proof of your expected income.
2. Sign up with a mortgage broker who is more likely to be in a position to offer jumbo mortgage options from a wide range of lenders, including those who accept low credit scores (as low as 660), as well as offering loans from most of the country’s larger banks. You should know that making multiple enquiries into your credit rating can affect your score by about 10% but most lenders anticipate that you will be shopping around and so take this into account, and in any case multiple enquiries in the same month are counted as one.
3. Avoid taking out other credit plans such as a car loan or signing up for a new credit card for at least three months prior to and during your mortgage application process (these will raise your debt to income ratio).
4. If you are self-employed, limit your deductions on your tax returns of the last 2 years so that they reflect more annual income. According to Federal law, to be approved for a mortgage your debt to income ratio should be less than 43% (though if you have reserves or assets those lenders with loans on their books may be able to provide funds to borrowers with higher ratios).
5. Don’t apply for a jumbo mortgage if your have experienced bankruptcy or had a foreclosure in the last 4-10 years. No lender will be willing to take this risk and all you can do is await the passage of time until you are eligible to apply again.

Be aware that any actions you take to improve your credit score generally take up to one month to appear on your credit report although for a small fee of around $35 you may be able to speed up the process for a ‘rapid re-score’ to around 3 days.

Also, be aware that many lenders have simulation programs that can show how your credit score will be impacted if, for example, you pay off your credit card balance. Requesting this may not affect the decision to offer or reject your actual application but it may help to qualify you for a lower interest rate once your application is approved.

For more information about jumbo mortgage loans take a look at our earlier blog entitled: What you need to know about Jumbo and Cash-Back Mortgages.

For further information on first and second mortgages, refinancing, debt consolidation and other types of financing please contact our expert brokers at Best Mortgage Montreal by calling

1-855-777-1711

1-514-994-1030

1-514-819-9181

You can also send your query via internet by filling in our simple online form.

Best Mortgage Montreal – offering some of the lowest interest rates in town.