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When to Reapply for a Mortgage Loan if Declined


You searched for months and finally found the perfect home. However, after sitting down with the lender, you get bad news that your application was declined. Obviously, you feel heartbroken and frustrated but also eager to fix things so you can purchase a home. The problem is not knowing how soon you can reapply for a mortgage after being declined. There are a number of scenarios and factors that determine when to reapply, with examples provided.

Bonus Income

If you plan to use bonus money as income when purchasing a home, you have to prove that you receive close to the same amount each year. For this, the lender looks for consistency over two consecutive years. Typically, a paystub for the end-of-the-year suffices, showing a breakdown of your annual income.

Now, if your annual bonus changes each year, the lender takes the two years and averages the amount. For example, if one year you receive $10,000 but the next year you receive $14,000, the lender considers $12,000 as income. However, if the annual bonus amount declined, the lender uses the lowest figure. If you did not provide this proof with your first application, you can reapply for a home loan right away, as long as you can show the bonus amounts.

Current Interest Rates

Before reapplying for a mortgage loan, consider the current interest rate. The reason is that a high interest rate influences the amount of the monthly payment. Therefore, if the loan was declined because your debt-to-income ratio was too high, you should wait until interest rates drop, which in turn reduces your monthly debt. The good news is that interest rates are currently at record lows, so buying a home now makes sense.

Something else to consider is reducing the amount of debt. Even if the interest rate is low, if your debt-to-income level is too high, the lender has no choice but to deny your request. However, after paying off debt to bring the ratio down, you can reapply for a mortgage loan. The exact timing depends on the amount of debt and how long it takes you to pay it off.

Less-Than-Perfect Credit

Although there are loans for people with less-than-perfect credit, you will pay subprime interest, which makes the monthly payment higher and increases the overall amount of the loan. If you had applied for a conventional mortgage while having poor credit and were denied, you do not want to reapply until your credit score improves.

For one thing, unless you raise your credit score, the lender will decline the application again. However, you should also know that each time you apply and get declined, your credit score drops further. Therefore, you want to spend between six months and one year cleaning up any errors on your credit and paying off as much debt as possible. As your credit score improves, so does the chance of being approved for a mortgage loan.

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