Mortgage
Application Rejected?
Relax, There's A Way
By Robert K. Heady
Bank Rate Monitor
In
the mad rush to grab a new mortgage or refinance your present
one while interest rates are at record lows, what do you do if
the lender denies your application?
Don't give up. There
may be a way out, according to experts, based on whom you do
business with, the type of mortgage you select, and what you
can afford with your current income.
The average 30-year
fixed-rate loan is now only 5.926 percent, and the average one-year
adjustable rate mortgage (ARM) 4.002 percent, according to the
respected interest.com Web site.
"About two-thirds
of mortgage applicants qualify for conventional loans, but those
who don't make it need to know why," says Doug Perry, first
vice president of Countrywide Financial, one of America's largest
lenders (reachable at 800-570-9888 or www.countrywide.com). "You
can possibly get approved, for example, by reducing the amount
of the loan or by making more money."
Adds Perry: "You
also might be approved if you apply for a different type of loan,
such as a fixed-period ARM, where the monthly cost is fixed for
the first three, five, seven or 10 years. Another way would be
to consolidate some of your debt.
"Many people have
the misconception that all they should do before applying for
a mortgage is to obtain their credit report beforehand, look
at it, and pay off their most overdue bills." That's not
the answer, Perry went on. "Better they let the lender pull
up the report for them and get free guidance on which credit
items need to be improved or cleaned up. Most reputable lenders
can do this."
Forgive all the following
math, but Perry gave specific examples of how a borrower can
improve his or her chances of being OK'd for a loan, using a
$150,000, 30-year fixed-rate mortgage as an example:
Based on a rate of
6.38 percent, the monthly payment would be $935.80, and the buyer
would need a gross income of $3,340 per month to qualify.
But if they applied
for a three-year fixed-period ARM instead, the monthly payment
would drop to $816.73, and the monthly income requirement would
fall to $2,917, a 13 percent drop.
Under a debt-consolidation
example, you could borrow $160,000 versus $150K and use the extra
10 grand to pay off your car that's been costing, say, $250 a
month. This would result in monthly payments of $998.19, versus
$935.80 for the straight 30-year deal above.
Other routes: Apply
for an FHA-insured loan, where the monthly payment would be the
same but the gross income requirement would be far less, i.e.,
$2,283. There are also interest-only mortgage loans, where you
pay nothing on the principal for the first 10 or 15 years. In
this case, $150K at 6.38 percent works out to a $796.88 monthly
payment, with a gross monthly income of at least $2,845 needed.
"People should start re-establishing their credit at least one year before approaching a lender a discouraging fact because interest rates are now so low," Randel added.
The bottom line is that instead of just walking away with a rejection slip, the buyer has lots of other options to explore. The system today is that flexible.
"Yes," emphasizes John C. Gormley III, president of Consumer Credit Management Services, Delray Beach, FL, (800-568-4545 and www.debt-mgt.org). "Shop your mortgage aggressively. There's a sea of lenders out there, and every underwriter has different criteria, be they credit scores, points, you name it. If you're turned down, the No. 1 thing to do is learn the reason why, then work on it - regardless of whether it's the score, your debt-to-income ratio or your credit history.
"There are better terms somewhere, guaranteed."
Editor's Note: Robert K. Heady is the founding publisher of Bank Rate Monitor. He invites Bull & Bear reader mail on consumer money problems and solutions but cannot respond personally to all inquiries. Send e-mail to jrnl8888@aol.com, or write to P.O. Box 14875, North Palm Beach, FL 33408.
