Top 4 Reasons Why You’re Getting Turned Down for a Mortgage
Today in this video, we’re going to talk about the top four reasons why your mortgage may be denied while your mortgage application may be turned down. Check it out.
Hi, I’m Rhonda Burgess and I’m a real estate broker here in the Nashville, Tennessee area and my firm is Southern Living Realty Partners and I am a native Nashvillian. I want to talk about your mortgage application being denied.
This was from the national realtor association for the top four reasons why mortgages are denied.
First debt to income ratio, 26% of applications were denied because of your debt to income ratio. I’ve talked about this before. You got to get your debt down. You got to get your debt down. You can’t be carrying a lot of debt some type of way. You got to bring the debt down and or increase the income some type of way, and let’s talk about your debt to income on your various loans.
For instance, on an FHA loan, they normally don’t like your debt. That’s an income to go over 41% a lot of times on your conventional loans, they don’t like your debt. To go over 40% your VA and your USDA loans, your rural housing loans are a little bit different because there’s no fast and hard rule, okay?
But normally they don’t like anything over 40-41% I’ve seen some go as high, you know, Oh, FHA especially, I’ve seen some where if you’ve got a very strong credit score, let’s say you in the high 700-800, your debt to income may be a little bit high, especially with USDA.
If you’re debt to income is high, but you got strong compensating factors, like you have a great credit score. You’ve been on your job for a while. The underwriting computer, the underwriting system, the computer actually underwrites your file.
So the computer actually decides what the actual DTI is that it will tolerate. Okay. But 26% of all mortgage applications are being turned down because your debt to income is out of whack. So that’s one thing that you need to work on is getting your debt down as low as possible.
The #2 reason for mortgage denial is credit history. 24% of loan applicants were turned down because of their credit history.
If you know your credit history jacked up, then what you gotta do is you gotta make a new history. You gotta put some new stuff out there that look good and make you look good.
You know, when I was in my 20s, in college, see I’m old. When we went to college, they had little credit card people right there at the student union or right there when you’re going to the cafeteria, you’re gonna go get something to eat. They had all the credit card people.
Hey girl. Hey, just cause you are in school, you can get a free credit card.
At one time I had 21 credit cards. I used to go play like it was like a deck of cards with all these credit cards and stuff, but I was young and crazy then.
Okay. But when I decided I was gonna buy a house, I had to clean that up.
You got to pay down, pay off dispute, get that stuff cleaned up and then you need to start developing some new credit. Get you a secured card. If I don’t think you can get an unsecured card, get you a secured card. Don’t go over 30% utilization. Use it and pay it off. Use it and pay it off. You got to use it.
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Let me tell you something. We’re going to swing back around on that credit and that DTI with this point right here. Did you know that FICO, the Fair Isaacs Company is coming out with FICO 10 this year in 2020 it is coming out in 2020 and they are expecting to everybody’s score to drop about 20 points off the rip.
You didn’t even do nothing. You didn’t do nothing. We ain’t done none nothing. We haven’t touched our credit.
So like if you were sitting at a 600 you may be back in the 500s you know what I’m saying? You you, you close to a threshold that you need to get a mortgage. Like you close to your 660, you close to 620 whatever, whatever and it drops 20 points. Then what are you going to do?
This new credit score, they said it’s going to look at your last 24 months. So you will be hit harder for delinquencies. Even if you just, you know, 30 days late even for delinquencies and high utilization, that goes back to that debt to income.
Do you see how the debt to income is going to tag you twice? You’re carrying a high debt to income so the underwriting model is not going to like that.
Okay, so you’re liable to get denied for that. But then when this new FICO 10 come out and it sees that you have high utilization, it’s going to drop you on down some more and you see how that, when you get that lower credit score and that higher utilization, you’re bound to get denied.
This is not going to work. This is not going to work. Get ready now. They told you. They put it out there. I got that from MSNBC or CNBC or somebody today.
Today, I saw that, that that FICO 10 is coming out in 2020 and it’s going to drop them scores about 20 points on average because it’s looking at your last 24 months. If you’re on the verge right now, you better bust a move while these interest rates are still low. Because all it takes is a little tick up in the interest rate and this FICO 10 to kick in and it’s going to make you completely ineligible.
Some of y’all are going to be blown out the water and you’re not going to be nowhere near ready for another 18 to 24 months if you don’t do something right now.
All right. The third reason for mortgages, denial, incomplete applications at 17%. Get your affairs in order before you even apply. Go on and find your W2s. Some of y’all, you don’t even know what your W2’s is from this year and you just got them a week ago. Gone and find your W2’s, your check stubs, get your bank statements, get all your stuff in order.
Because I’m just telling you as a former underwriter, I may ask you for anything and I can, because I’m the underwriter. I have to check off certain things. I have to make sure that your loan is not going to go delinquent. So if I asked you for, I want a payment history of the last 12 months of you receiving child support for those of you who received child support. Or I want to see the last 12 months payment history for those of you who pay child support.
Gone and get that. Don’t be all like, “they didn’t want me to have it and they tripping”. You know what? They not tripping. They not tripping.
I want to make sure you telling me. Okay. I want, I want a birth certificate for that child that you, you’re receiving a child support for cause I want to make sure that you’re going to be receiving it for at least the next 36 months. Why they want to see that? They tripping!
No, I want to make sure that you going to be receiving this for at least three more years because if that baby is 17 years old and six months, I’m not going to include that income because that income from the cut off.
It’s not personal. This is this other thing that you need to realize when, when when the mortgage underwriters and your loan originators tell you, do the underwriter wants this or the processor calls you to say the underwriter wants this and wants that. It’s because, let me tell you how to underwrite and game works.
When I was an underwriter for a mortgage company, for a mortgage broker, first of all, okay. I’m not talking about when I worked for the government where I’m gonna get to that in a minute. But when I’m working at a bank, I’m at a Bank of America, I’m at a Regions, you know, and I’m just telling you, cause I worked at Regions.
I’m telling you from experience, they keep a running tally of how many of your loans go bad and that comes back against you. That puts your job in jeopardy.
When I was with a mortgage broker and we had our own warehouse line, I could originate a loan and underwrite it, or one of my originators would, would, you know, bring in a loan and I would underwrite it.
If I wanted to, I could fund that loan myself out of that warehouse line. I could just go to the warehouse line. Oh, you want to close on Tuesday? And the loan is for $200,000 okay, fine. I get the pricing and everything. I took that out of my warehouse line. Let’s say my warehouse line is only $20 million. Okay? I done took out $200,000.
But let me tell you what, if that loan goes bad, normally within the first 12 months, I got to eat it. That means my office got to buy that loan back cause that loan went bad.
So I’m just supposed to make an exception for you? I’m supposed to make an exception for you when this is my money on the line. See most underwriters are taught to think this is your money, this is your money, this is not the company’s money. This is your money.
Because see when that’s my branch, that’s my mortgage office. That’s not, I’m not going to, I’m not going to eat that. I’m not going to eat that. Those of you in the insurance business you know what I’m talking about. You don’t want that cheese burger. Y’all understand what I’m talking about.
So finish your application, get your stuff together ahead of time and don’t be tripping on this.
And then don’t be tripping because you sat up there and cosigned for your boyfriend’s student loans and this fool ain’t paying it. And they looking at you. They giving you the side eye. And you’re like “I can’t believe they’re tripping like that.”
Dude, you’re obligated for that. And you know at this point, don’t nothing get rid of student loans but death. So get your stuff in line ahead of time and have it ready before they even ask you.
But on that same tip, don’t put extra. Now if I didn’t ask you for it, don’t put it in there. I can’t tell you how many loans I have killed, especially on the government side when I was with USDA and underwriting an FHA loan too. They would send in stuff that you’re not supposed to have in there.
I’m gonna give you an example. Like a USDA. We had income limits. Okay, so I’m looking at the file. It’s a, it’s two people. Husband, wife, boyfriend, girlfriend. Okay, cool. They’re telling me he makes 75,000 a year. He’s right at the limit. He’s right there, right? They told me she don’t work. So that’s all the income in the household. $75k.
Now let me tell you what – I’m one of these people, you put something in front of me, I’m finna read it. I don’t care. Look, I be all in the Koolaid. I’m just going to tell you, I’d be like, I’m finna read everything. You’re going to put a letter, whatever. I’m going to sit and read it.
Especially if it’s a manual file. I’m gonna tell you what the manual files. I’m gonna do it in first thing in the morning when I’m fresh, when my eyeballs is fresh, I’m not doing no manual files or you know nothing crazy after lunch cause I’m over there like is I’m over there, nearly unconscious.
But first thing in the morning, I’m fresh to death so I’m going to read everything.
So I’m looking at this file file about thick, like it’s by a hundred some 200 pages. Ooh, the devil is a lair if you think Rhonda ain’t gonna read it? I’m just going through here. Why do I see some check stubs in here for Ms. Thang?
I can’t tell you how many times I used to look around and think I was somebody was punking me cause I just done seen some stupid stuff they put in the file. And I’m like, I know these fools did not put this in the file. I know on the top sheet you did not put this, she don’t work. I know you didn’t put, you didn’t put her own application. I know you’ve given me all this stuff telling me she don’t work and just because it’s page 157 you didn’t think Rhonda was going to read it.
And I get there and I looking at her paycheck stub. Like it’s like come on now. Come on. Don’t put extra in there. But give the underwriter exactly what they asked for it. Just give it exactly. Don’t give me nothing else because you know what? When I got time on my hands, I’m gonna start reading and I’m dangerous when I start reading.
And finally the fourth reason for mortgage denial is insufficient collateral at 16%.
That happens when you’re, when you’re buying a property that may be you’re trying to buy it for more than what it’s really worth cause you done got your heart set on this piece of mess. Half the time it’s a piece of mess. And you get caught up and just, Oh I just love this propery. I just got to have this property.
And this property ain’t worth the contract price. That’s when you get blowed out for insufficient collateral. So just make sure have your realtor do a good market analysis on the property. Don’t go by Zillow.
Again, subscribe to the channel. If any of this has helped you. I know sometimes I go left, but I really be trying to tell y’all what the real deal is.
Again, my name is Rhonda Burgess and I am a real estate broker here in Nashville, Tennessee and I’m a former mortgage underwriter, originator, processor, title processor. I have done it all when it comes to mortgages and I still deal with mortgages every day on a daily basis.
If you help with finding a home here in the middle Tennessee area, I would, I would love to work with you. My phone number is (615) 554-0832, please feel free to give me a call.
If you want access to the Nashville MLS, please download the HomeScout app from your app store or your play store and use my VIP code 0832 to have access to the latest MLS listings.
Again, subscribe to the channel as we will be adding more videos in the coming days all about your mortgage, how to get it done, how to just get in there.