Is your bad credit home loan denied? Don’t know what to do next? Start by knowing the reasons why you were denied, when can you reapply, and what steps to take to prevent rejection on your next application. This is true to any type of loan being applied for. Regardless if its a bad credit home loan, an auto loan, or a business loan.
4 Top Reasons For a Bad Credit Home Loan Denied Application
Loan specialists are happy to accommodate your question. They can give an explanation and certain disclosures as to why your application was rejected. Unlike bank applications, you are sometimes left clueless on why your application is rejected. Loan specialists like Intellichoice Finance do not work that way. In the event that you failed to qualify for a loan, we are willing to help you understand your financial situation and give you tips how to improve your chances in securing a loan the next time you apply for one.
Here are common reasons lenders reject a loan application
1. Bad credit or no credit. Most lending companies put a high regard on the borrower’s credit history in loan applications. They are looking for a strong credit and repayment history. If you have been denied for a bad credit home loan, there could be a chance that you have not met the lender’s criteria. Or have not seen an effort from you to improve your present credit score.
2. If your credit is the reason, your lender will send you a notice of adverse action. The notice will explain that your credit file was used in their decision to deny you of the loan for specific reasons such as defaulted loans or too many inquiries, and an explanation of your specific rights. Even so, you still have the chance to improve your credit.
3. Insufficient income. Lending companies would like to see that you can make the minimum repayments prior to approving your loan. Lending companies are mandated by law to make calculations in order to determine your ability to pay.
4. Debt to income ratio. Majority of lenders make use of debt to income ratio to gauge your ability to pay once loan had been granted. They compare your monthly earnings to your monthly debt repayments. If results seem like a new debt is not feasible, your loan is rejected.
3 Ways to Increase Your Chances of Securing a Home Loan
1. Evaluate yourself just as lenders will evaluate you. Fix any negative marks on your credit. Make sure your income is sufficient to support repayments on the loan. Take the advice of the loan specialist who initially evaluated your loan. Take notes on areas in your finances that you should be improving.
2. While checking your credit report, you may ask lenders what problems can arise from your credit standing. Lenders will be glad to discuss what can help and what doesn’t. They can also disclose to you when can you apply for a loan after unfavorable circumstances like bankruptcy and foreclosure.
3. If you choose to work with your local credit union or with an alternative specialized lender, you can speak to them directly to know what you need to do in order to qualify for your next loan application.
Work with the guidelines below to help you fix your current finances and turn into a better candidate for a loan.
Tips To Help You Regain A Healthy Credit Score
If you found errors in your credit file, fix them promptly. Contact the credit bureau to let them know of an inaccurate information on your file. Note that you have the right to correct incorrect data on your credit and get it updated within just a few days. Having other debts when applying for a loan may have caused rejection of your loan. Pay off other debts to reduce monthly debt repayments. This improves the way lenders look at your financial status.
4 Strategies To Apply on Your Second Attempt in a Home Loan
There are also strategies you can use that have an immediate effect on your credit score or may result in being approved for the loan:
1. Present a bigger down payment. Presenting a bigger down payment for a home or car loan can help you get an approval. A bigger deposit will mean borrowing less and therefore lower monthly repayments. With this approach, lenders will be assuming less risk with a lower loan to value ratio, thus, you have a higher probability of getting an approval even with poor or bad credit score.
2. Consider using a collateral. A loan application backed by a collateral has a higher probability of getting an approval. A collateral could be any of your assets that you present to the lender to secure the loan. However, you have to be aware that in case of non-payment, you can lose your collateral to the lender like repossess your car or foreclose your home.
3. Get a family member or a close and trusted friend as a cosigner on the loan. A cosigner can back you up if your credit or your income is insufficient to get an approval. Your cosigner should have a good credit and stable income. The cosigner on the loan will be assuming the same responsibilities on the loan as it is with the borrower. Thus, in cases of non-payment, the cosigner can suffer the same consequences as the borrower including getting a negative mark on his or her credit. Get a cosigner who fully understands these responsibilities.
4. Consider applying with another lender. If one lender denies you, it doesn’t mean that the other lender will automatically reject your loan application too. Lenders have varying criteria for approving a loan. So learn from the first lender and start working on improving your credit and income information. When applying with another lender, you don’t have to wait. You just need to improve on areas where the first lender rejected you the loan.
Being rejected on a bad credit home loan application can be very frustrating but you can always learn from your mistakes. Learn what are the factors that made an impact on your loan application that led to loan rejection. While considering your next steps, start rebuilding your credit, get caught with debts and other loans you have fallen behind with, start paying outstanding debts, and finally find ways to increase your income.