According to Ellie Mae, the 75% mortgage loan approval rate is at its highest level in more than a decade. That is obviously great news for those purchasing a home and for those existing homeowners who are taking advantage of the robust refinance market.
Source: The Mortgage Reports
Denial of credit is, usually, not permanent. This is good news. Loan offers and underwriters analyze many financial factors in every loan file. Automated underwriting systems (AUS), FICO scores, debt to equity ratios, loan to value ratios, and the appraised vale of the home are indicative of a borrowers ability to repay a mortgage.
A reputable lender will work with borrowers who are denied credit. The loan officer must take time to explain the reasons for the denial and offer suggestions for improvement. For a nominal fee, credit repair companies provide recommendations for retiring debt that is responsible for the mortgage denial. Frequently the loan officer will check the AUS findings and make recommendations that will improve FICO scores.
Small Changes, Big Impact
Most lenders approve or turn down a loan based an Automated Underwriting System, or AUS — software that weighs all factors of your loan profile.
The algorithm is not super predictable. In fact, a small tweak can move you to “approved” status.
For example, an applicant might have perfect credit, but a high debt-to-income ratio, and a small downpayment. He does not receive an approval.
But he pays off a high-payment credit card. His debt-to-income drops, and he is approved.
Lenders see these reversals in fortune all the time. Often, they keep mental notes of what works and what doesn’t. If your loan is not approved, ask your loan professional if there’s anything you can change quickly to get approved, such as the following.
- Make a slightly bigger downpayment
- Buy down the interest rate by 0.125%
- Obtain a rapid rescore to raise your credit score a few points
You could be surprised at what a seemingly small change can do to your approval status.
Remember, the financial factors that result in credit denial are not permanent. Credit can be improved. In many situations the borrower can improve credit within a month or two – quick enough to change the denial to approval.
The attached article provides a road map for next steps when you or a customer are denied credit. Make sure you are working with the right lender as well. A reputable lender welcomes the opportunity to help a potential buyer improve their credit so they can own a home.