Why Do Mortgage Lenders Reject Home Loan Applications?

Mortgage lenders reject loan applications sometimes because the application fails to meet one or more of their underwriting criteria; sometimes because the application marginally meets their underwriting criteria, but comes very close to the line in several other key area; and sometimes an application for a loan is rejected, not because of the applicant, but because the property that will secure the loan is located within a poorly run homeowner association.

Following are the most common reasons mortgage lenders reject loan applications:

  • The applicant has little or no credit history;
  • The applicant has a FICO Score that is below the lender's minimum requirement;
  • The applicant's debt ratios do not meet the lender's minimum requirements;
  • The applicant has not been on the job long enough based on the lender's underwriting requirements;
  • The applicant is self-employed, which violates the lender's criteria;
  • The application is incomplete;
  • The applicant has had too many jobs according to the lender's underwriting standards;
  • The applicant filed for bankruptcy within two years of the date the loan application was submitted;
  • The loan amount required is too high given the lender's underwriting standards;
  • The appraisal came in too low to support the loan application;
  • The applicant has insufficient cash reserves according to the underwriting standards of the lender;
  • The property is in a flood zone;
  • The property is in a high fire risk area;
  • The property is on or very close to a major earthquake fault; and/or.
  • The property is located within a homeowner association that is run very poorly. See: Reasons Lenders Reject Loan Applications from Condominium Owners and Buyers.

Many mortgage loan application rejections take place because the wrong lender was selected given the applicant's situation. It is precisely for this reason that people wanting to borrow money to buy or refinance real estate should utilize the services of a mortgage loan broker that has many lenders to close from as opposed to a bank or credit union that has one choice.

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