Don't be surprised if your "friendly" lender, the one who invites you to sit down and apply for a mortgage, ushers you politely out the door empty-handed after you've chatted a bit.
The sudden chill isn't personal. The Mortgage Bankers Association, or MBA, in Washington, D.C., estimates that about half of all mortgage applicants are now being turned down. Though refinancing approvals remained static, the acceptance rate on mortgage applications suffered a 10 percentage-point drop, from 63 percent in the first half of 2007 to 53 percent in the first half of last year. Since then, further tightening of credit standards means at least half of mortgage-seeking consumers can't squeeze through to acceptance.
Instead of yielding to shame or anger, you should adopt a pragmatic stance, since clear-eyed determination may eventually land you a loan. How? This is how:
- Get The Reason - If you've submitted a formal application, federal law dictates that you're entitled to a formal rejection.Expect an "adverse action" notice, spelling out the reasons for turning you down, which these days is likely to state that the loan amount you're seeking is too large compared to the current appraised value of your home, the condo development doesn't meet the lender's guidelines, work history, credit, too much debt, etc...When credit is the issue, an adverse-action notice is required, naming the credit reporting agency that provided the data on which the lender based its decision, according to Federal Trade Commission rules. The lender will usually request your FICO Score from the 3 Credit Agencies and will use the average score; if one of them have wrong data, it may affect your application and action is needed.When the condo development is the issue, talk to your buyer's agent; he will be able to recognize the issue and refer you to a lender that is okay with the condo development. Issues may be low owner occupancy, less than 70% sold in the condo development, one owner owns more than 10% of the condo development or condo association is not established for at lease one year. If you're buying a new construction, usually the developer's lender is more willing to finance the acquisition.
- Find A Fix -Qualifying for a mortgage isn't a black-and-white issue. Rather, different loans at varying rates may be available, depending on how risky a lender thinks a particular mortgage will be. If you don't qualify at 5.5 percent, for instance, you may be able to get the nod for a loan at 6 percent or 6.5 percent.To get a good rate, some borrowers may be able to make changes — like lowering the amount of the loan they seek. When a borrower isn't far from the qualifying mark, he may be able to reapply and be approved relatively quickly. For instance, if you're within reach of a 740 credit score, which is usually required for the best rate, a simple pay down a credit card balance may hit the target.
- Seek Out Other Options -Not every lending firm adheres strictly to the same guidelines, and one lender may approve what another rejects. A local community bank, may be more flexible, as most of them are "portfolio" lenders (lending their own money and don't sell the loan to the secondary mortgage market) and most of these banks did not lend sub-prime mortgages and are not hurt by the mortgage bubble. The local banks know and understand the local housing market and the local real estate market trends; although still using an independent appraisals, they may look differently at comparable.
- Ask Your Buyer's Agent For Advice - Your buyer's agent knows the market and the players in the market, his motivation is to make your transaction smooth and hassle-free. He can also predict which of the banks have better chances to approve the loan.