Renting vs Buying -Which Choice is for You?

Introduction

The joys and anticipation of owning a new home are sometimes crushed when the application for mortgage financing is turned down by the lender. If your loan request has been denied, you should understand why the loan was denied and what steps you can take to correct the problem or make sure that it does not happen again in the future. The following information helps you understand the most common reasons for loan denials and corrective measures you can take, and it describes some alternatives that exist especially for low and moderate income home buyers.

What If You Are Having A Hard Time Qualifying?

If you find that you are having a rough time trying to qualify for the loan you want there are several things you need to look at. It can be discouraging to find that you are having problems with loan qualification, but try not to let it get you down. If you really want to own a home badly enough there are usually steps you can take to see your dream come true.

Possible Causes For Rejection And Your Alternatives

Appraised Value Too Low

One of the factors considered by the lender is the ratio of the loan amount to the sale price or the appraised value of the property, whichever is lower. If the appraisal on the property is substantially lower than the purchase price, the loan-to-value ratio, or LTV, may be higher than the lender will, or can legally, approve. If you have applied for a maximum loan amount, 90 to 95 percent of the purchase price a low appraisal may make your requested loan too large. Your alternatives in this situation will depend upon the reasons for the low valuation. Did you and your Realtor underestimate the value? In that case you should be glad that the appraiser has caught the low value for you.

If the value is low because the property needs major repairs such as a new roof, you can use the appraisal as a tool to renegotiate with the seller. If the seller won’t renegotiate you should just look elsewhere. While you’re at it you might want to look for a new real estate agent too. If this one encouraged you to pay too much money for a property, they may not be familiar with the current values in that area.

If the purchase price is simply higher than the prevailing prices being paid in the general area, you can try to renegotiate the price with the seller down to a level more in line with the market and one which the lender would accept in order to approve your loan. If this is not possible, your only other solution is probably accepting a lower loan amount, assuming you have sufficient funds to cover the additional down payment.

It is also possible that there is a problem with the appraiser. Maybe he is not familiar with the values of properties in your area. Find out if the appraiser has done very many appraisals in that area. Check the appraisal comparables and see if they are good representations. The lender should be familiar with the appraiser and be able to provide you with information. Your Realtor should also know appraisers for that particular area who might be able to give you an idea of reasonable value for a reduced fee.

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