Triggers for Rejection -Mortgages

The New York Times
By VICKIE ELMER
Published: October 6, 2011

“WE regret to inform you…” Nobody applying for a new mortgage or a refinancing wants to see or hear these words. But last year more than two million people were turned down for home loans, according to federal data, often because they didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic.

And that number, from the Federal Financial Institutions Examination Council, doesn’t even include those who abandon the often-complicated mortgage qualification process. The Mortgage Bankers Association estimates that about half of those who try to refinance and 30 percent of buyers are either denied or drop out.

“A lot of people have credit banged up,” said Michael Fratantoni, the association’s vice president for research and economics.

Lenders’ underwriting criteria have become more rigorous in recent years; some banks have tightened up beyond federal requirements. Here are the six biggest triggers for rejection, according to industry experts.

INSUFFICIENT INCOME Lenders want to make sure you can afford to make the mortgage payments. Someone who earns, say, $40,000 a year need not bid on a $750,000 apartment, unless there’s a trust fund with quarterly payouts or other money available. Also, lenders typically look for at least a two-year track record of income, which could hurt those who may have switched jobs recently. “It’s common to get turned down if you have a gap in employment history over the last two years,” said Erin Lantz, the director of the Zillow Mortgage Marketplace, an online loan-matching service.

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