It's something that no one wants to think or talk about, but it happens all the time. You find the perfect home and fill out the paperwork and submit it, or you finally decide to refinance your home in order to take advantage of lower rates, and wham, you get denied!

Low mortgage rates continue to push borrowing costs lower this year, but not every consumer is able to qualify. About a quarter of mortgage refinance applications are getting denied, according to a study from LendingTree of more than 10 million mortgage applications.

The top four reasons why applications were denied:

-Debt-to-income ratio continues to be a problem. Those ratios accounted for 26% of mortgage denials and proved to be the biggest barrier for borrowers living in pricey cities. The debt to income (DTI) ratio measures the percentage of your monthly debt payments to your monthly gross income. Lenders will usually approve you for a loan if you have a DTI ratio of 43-50% or lower, and a good rule of thumb is to keep your debt to income ratio around 36%.

-Credit history contributed to 24% of denials, according to LendingTree’s study. A credit history is a record of a borrower's responsible repayment of debts. A credit report is a record of the borrower's credit history from a number of sources, including banks, credit card companies, collection agencies, and governments.

-Incomplete application is just sloppy paperwork. Everything must be filled out and double-checked. Don't just guess on some line items since the banks check everything.

-Insufficient collateral means that you don't have enough other valuable investments that the bank can take if you fail to pay off your debt or loan. If loan payments are not made, assets can be seized and sold by banks.

If you want to better your chances of a mortgage approval, lenders recommend examining your credit history and disputing any errors before applying, and paying attention to your debt-to-income ratio.

The bottom line is:

“Don’t take out a new loan that stretches your ability to repay, LendingTree states. Pay down debt prior to applying for a loan, and limit spending.”

Source: excerpts from Realtor Magazine

Laura Flynn, Real Estate Broker

Coldwell Banker

Downers Grove, IL

5114 Main Street

Real estate agents affiliated with Coldwell Banker are independent contractor sales associates and are not employees of the company.

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