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Top Six Reasons Banks Turn Down Home Loan Requests

Real Estate Broker/Owner with The Becker Group ~ Real Estate Agents

A lot of potential home buyers are confused as to what the minimum credit score is in order to get a decent home mortgage loan. Typically, a credit rating of 640 or more will get you qualified for a home loan. Many banks that in the past quickly approved loans by easing their underwriting techniques, have dug themselves into a significant hole that will take them many years to climb out of.

Remember the promotions of 100% Financing and "No Doc" Loans? The majority of today's financial probelms are the direct result of those poorly thought out programs. Today banks are making sure they don't repeat their past mistakes. Today, the vast majority of banks have tightened up their lending standards. Borrowers are being turned down at an alarming rate. Here are the top six reasons banks are denying loan requests:

1. Poor Credit: The borrower may have a sizeable down payment or equity in the home they want to purchase, but if their credit score is under today's requirements, getting a loan or refinancing their current home loan from a traditional bank can be quite challenging. Even FHA loans now have a much higher credit score of 693 than average.

2. Lack of Income: The borrower does not have enough consistent proof of income for the last 2-5 years. This presents a huge problem for retired borrowers.

3. False Statements on Applications: Banks have learned their lesson and are no longer putting up with borrowers lying on their aplications.

4. Debt: The borrower has excessive debt and their debt-to-income ratio exceeds the bank's guidelines.

5. Unemployment: Most lenders would like to see at least 2 years of stable work to issue a loan approval.

6. Self employment: Lenders are looking at self-employed applicants with a lot more scrutiny making it very tough for those borrowers to get approved.

Obviously the improved standards are better for the industry and our overall economy, but at the same time, home buyers are quickly realizing that reputable credit and stable income aren't always enough to qualify for a loan with most lenders.