The mortgage loan application process is quite rigorous - one or several strikes against you and the loan officer decides that you don't qualify. There are many reasons why your request for a loan may have been rejected. Receiving a rejection letter can certainly be a disappointment. But rather than dwell on the unfortunate outcome, use it as a valuable learning experience and correct the problem. Our real estate agents share five possible causes for a mortgage loan denial and what you can do to improve your chances moving forward.

• Down Payment is Too Small
  A down payment shows lenders that you're capable of saving money, and you're serious about investing in your future home. So, a small down payment does little to put their minds at ease. Conventional loans require a down payment anywhere between 5% and 20% of the total value of a home. If you come up with anything less than 20%, chances are very high that you'll receive a denial or be required to pay private mortgage insurance.
  
  How to fix: Start saving early enough so you reach the 20% threshold when submitting your application or wait and give yourself time to save up the funds. You can also use a gift from a relative as long as no repayment is expected. Ensure you're transparent in documenting the source of the money. Finally, you can have the seller pay some of the closing costs.
  
  
• High Debt-to-Income (DTI)
  Your debt-to-income ratio measures the amount of your monthly income being consumed by debt. Most mortgage lenders consider DTI because they don't want to lend to someone who will start having financial difficulties. As a good rule of thumb, your debt-to-income ratio should not be more than 43% of your monthly gross income. A high debt to income ratio is a red flag because it shows that your budget is not capable of handling a new debt.
  
  How to fix: Increase your income by taking on a part-time job, requesting a salary increase, or monetizing a hobby. You can also increase the amount you pay toward your debt. This will temporarily increase your debt-to-income ratio but will also lower your overall debt more quickly.
  
  
• Poor Credit Score
  If your credit score falls in the 300-619 range, it's a likely reason why you were denied a mortgage loan. Racking up too much credit card debt or making late payments will bring down your credit score. A poor credit score tells lenders that you're a risk for a mortgage loan, and there's nothing they can do about reversing a loan denial until you meet the minimum credit score requirement.
  
  How to fix: Access your credit report just to make sure your credit report is up to date and error-free. And if there are no problems, you need to start repaying outstanding balances on time. Also, keep your credit accounts open and avoid making big purchases.
  
  
• Inadequate Employment History
  Stability and job security are important elements for lenders. If you've recently lost or changed jobs, don't be surprised if you're denied a loan. Most lenders want to see that you've worked for the same employer for the last two years before signing off a loan. They want to know you're able to hold on to one steady job long enough to repay your mortgage.
  
  How to fix: Ask your employer to submit your offer letter or pay stubs to show you'll have consistent employment and income in the coming. You can also provide your tax information.
  
  
• Undocumented Income
  While you may be earning enough to pay your mortgage and bills, lenders will typically worry about approving a loan if you can't adequately document your income. Lenders want to verify that your income is as high as you claim it is and whether your income will stay steady. So, having large unknown deposits can be a red flag if you don't have a paper trail to show where it came from.
  
  How to fix: Keep an accurate record of your finances and document all of your income. If you receive monetary gifts, then you'll want to indicate that and ask the person who sent the gift to write a letter stating this. Also, include tax returns from the past several years.

Our real estate agents at Josey Young & Brady Realty are here to provide sound advice and help you find the right Atlanta homes for sale. Contact us today to discover more.