An interesting article in Realtor.com explains why mortgage applications are sometimes denied. According to the article a recent Federal Reserve study concluded that one out of every eight home loan applications (12%) ends in a rejection. The causes mainly relate to low credit scores and Realtor.com identifies at least five reasons a score can suffer from consumer activity (or inactivity). They include:
1. You didn’t use credit cards enough
“While a poor credit history riddled with late payments can certainly call your application into question, it’s just as bad, and perhaps worse, to have little or no credit history at all. Most lenders are reluctant to fork over money to individuals without substantial credit history. According to a recent report by the Consumer Financial Protection Bureau, roughly 45 million Americans are characterized as “credit invisible”—which means they don’t have a credit report on file with the three major credit bureaus (Equifax, Experian, and TransUnion).
2. You opened new credit cards recently
“New credit card applications can ding your credit score by up to five points, says Beverly Harzog, a consumer credit expert and author of “The Debt Escape Plan.”
3. You missed a medical bill
“Credit cards aren’t the only debt that count with a mortgage application—unpaid medical bills matter, too. When you default on medical bills, your doctor’s office or hospital is likely to outsource it to a debt collection agency, says independent credit expert John Ulzheimer. The debt collector may then decide to notify the credit bureaus that you’re overdue on your medical payments, which would place a black mark on your credit report. That’s a red flag to mortgage lenders.
4. You changed jobs
“[M]ortgage lenders like to see at least two years of consistent income history when approving a loan. As a result, changing jobs shortly before you apply for a mortgagecan hurt your application.
5. You lied on your loan application
“This one seems painfully obvious, but let’s face it—while it may be tempting to think that lenders don’t know everything about you financially, they really do their homework well! So no matter what, be honest with your lender—or there could be serious repercussions. Exaggerating or lying about your income on a mortgage application, or including any other other untruths, can be a federal offense. It’s called mortgage fraud, and it’s not something you want on your record.”