30% of home buyers denied or give up on Home Loans

About 30 percent of American home buyers are either denied a mortgage, or they drop out of the application process according to estimates from the Mortgage Bankers Association. Last year, more than 2 million people were turned down for mortgages, according to the Federal Financial Institutions Examination Council.

Biggest reasons for rejection:

• Insufficient income: You simply must be able to have enough income to support the loan.

• Bad credit. If a credit score is somewhere around 620 to 660, depending on the bank, lenders almost automatically say no.

• Credit details. There are many rules, and it’s not easy to understand what a bank wants. Overtime income, for example, only counts if documented for at least two years to some lenders. Rental income may only count if the borrower has a 30 percent equity stake in the building.

• Appraisals. If an appraisal is lower than an agreed-upon selling price, the lender will stop the process. Buyers must make up the difference or the sales contract must be renegotiated.

• Incomplete information. Paperwork problems – incomplete information, missing forms, etc. – bog down about 12 percent of applications.

• External problems. A lender could nix an application if the homeowners’ association has issues for example.

• Gaps in employment history over the last two years may result in denial of the loan.

Source: “Triggers for Rejection,” The New York Times (Oct. 6, 2011