Why were we denied a mortgage loan?
December 2, 2011 in mortgage by jedwan
My husband and I married in January. I’m 22, he is 25. I had my first credit card at 18, my husband at 22… so we’ve got some credit history. My husband makes about $ 37,000 a year before taxes and I’m a student. We are living in a house right now that we own (no liens or anything) that was given to us, and it’s worth about $ 100,000. We wanted to buy our own home and rent the house we are currently living in. We each paid $ 15 for our credit reports online… his are – 636, 665, and 640… mine are – 616, 636, 627. Then we applied for a mortgage loan at a local “financial services” place (not a bank) for an $ 80,000 home loan and was declined.
The “underwriter” told me it was because my husband’s credit score was only a 602. I told him that was wrong because we had just looked at our scores and reports. He told me they look at a different kind of report than what we get from a “personal enquiry”. Is this true? AND– he told me that I had no credit at all appear for my social security number. Well, I’ve had three credit cards (one of them I just used today), an auto loan, and all of our bills are in my name. I know I have credit! Is it just me, or is something not right here?!
we got our reports from equifax.com and we paid to get the equifax, experian, and transunion scores, all three
Lots of mortgage lenders use their own system to calculate a score similar to a credit score. I would ask him to verify your social security number and ask what types of items they consider in their score (just in case there’s some strange rule that doesn’t include your previous credit accounts). Other things that can impact your approval for a loan are the downpayment and the current amount of debt you each have. I would try a bank or credit union within the next week so the multiple inquiries will only show up as one on your credit report.
Your credit scores are fair. Had you a score of 750 you would have been approved.
Where did you get your credit scores from?
Just asking as you can’t purchase your Experian score anymore … Only Equifax and Trans Union, and the best place to get those is from myfico.com ..
It is possible the lender used their scoring model to calculate your scores, and his medial score could be 602 under their criteria … One thing that works against you,, no past mortgage .. And the low 600′s are low credit scores,
Other reasons,, you appear on paper to have high DTI … 37-thousand doesn’t go far these days … Annd while you may rent out your existing place for enough to cover the new mortgage,, Lenders wont accept that as income unless you can prove you’ve received steady income from the rental property, usually that means two years worth of reported rental income and you’d need to report that on your tax returns for them to accept it as adjusted gross income ..
Good luck
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The credit scores aren’t the best. In the present tight credit market, you’re considered a higher than normal risk, even with the scores you got, which are higher than what the broker came up with.
Because of this, lenders aren’t as lenient with borderline debt-to-income ratios, which have also been tightened.
I sold real estate from 1985 to 1996. Interest rates during that period were as high as 13% and as low as 9%. You couldn’t buy as much house, and as a result, values were lower, so houses were still affordable for many. The debt to income ratios were 28% of monthly income for the total house payment or PITI (principal, interest, taxes, insurance) and 36% of total debt.
At 37K annually, or 3100 per month, you would be allowed a house payment of $ 775 and total debt of $ 1025. More other kinds of debt reduces what you can use toward the mortgage. Throw in a credit history with scores toward the low end and those debt limits are lowered to 25/33.
The crazy years of relaxed standards or no standards at all are what got us in this mess, and they are over. I don’t know what the DTI standards are today, but they are tight again. This is probably closer to the truth as to why you were denied, but it’s a lot easier to say ‘bad score’ than to explain the system.
Maybe you feel that you can afford a house payment of $ 775, and an 80K loan at 5% for 30 years for someone with fair credit would be around $ 430 a month before taxes and insurance. But, what is your other debt?
You say you are a student. Do you have student loans? Does your husband? Do you have car payments, credit card debt? All of that, per month, comes off of that $ 1025. Additionally, with no history (yet) of income on the house you want to keep, a lender will look at that house as a debt in the form of property taxes and upkeep.
It could look something like this:
1 student loan $ 100 per month
1 car loan $ 200
Credit cards $ 100
Taxes on existing house $ 150
Upkeep on ” ” $ 50
That’s $ 600 a month, and those are conservative guesses. If that’s around where you are, your $ 1025 a month total debt is down to $ 425, and no lender anywhere is going to give you an 80K mortgage loan with scores in the low 600s.
Sorry, but things are going to be hard for a while until they start to get better. It goes in cycles.