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Left out in the cold by a tight lending climate, prospective homebuyers are finally starting to see a thaw.

Fifty-one percent of respondents to the latest Fannie Mae National Housing Survey indicated it’s now likely easier to secure a mortgage. That latest burst of confidence could help keep the housing recovery moving forward.

“Consumer attitudes toward both the economy and the housing market continue to gather momentum,” Doug Duncan, senior vice president and chief economist of Fannie Mae, said in a news release.

Confidence and optimism. Momentum and recovery.

So why can’t you get a home loan?

It’s a question with dozens of possible answers. Despite the loosening standards, about a quarter of all people who apply for a mortgage are ultimately denied. Each potential homebuyer’s loan file is different, but there are some broad, overarching issues that may be to blame.


This is probably the most common hurdle. Lenders will have a qualifying credit score depending on the loan type, your background and other details. That baseline also applies to anyone else on the mortgage. So you might have an 800 credit score, but if your spouse is lagging at a 530, you’re going to struggle to obtain financing.

Even if you’re going it alone, lenders in community property states may still factor in your spouse’s credit. The average credit score for conventional purchase loans was 762 in September, according to mortgage software firm Ellie Mae. For FHA loans it was 701. Military borrowers interested in using their VA loan benefits will generally need at least a 620 score.

Debt-to-Income Ratio

Conventional and FHA lenders look at two different debt-to-income (DTI) ratios. The first, or front end, ratio compares your monthly income to your housing costs. The second, or back end, ratio considers the percentage of your income that goes toward major revolving debts like the mortgage payment, credit card bills, student loans and others.

Conventional lenders are generally looking for a 28 percent DTI ratio on the front end and 36 percent on the back end. For FHA loans, it’s more like 31/43. The VA program only uses the back-end ratio and wants to see 41 percent or less.

Your DTI ratio may not be an immediate application killer. Lenders calculate it based in part on your estimated monthly mortgage payment. It might break your heart, but you can always run the numbers with a lower loan amount to try and get that ratio into qualifying range.

Cash on Hand

Down payment requirements are here to stay (unless you qualify for a VA- or USDA-backed mortgage). Conventional lenders typically require at least a 5 percent downpayment, while the minimum on FHA loans is 3.5 percent. In addition, you’ll likely need to put down earnest money, which is basically a good-faith deposit with a seller, and be able to cover an appraisal, a home inspection and possibly other up-front costs.

Assets have become increasingly important in this tighter lending environment.


Lenders want to see stable, reliable income and employment that’s likely to continue. The gold standard is generally two years, but that can vary depending on the lender, the loan type and the borrower’s circumstances.

For example, service members who separate from the military and take civilian jobs may not have to wait two years depending on how the new employment relates to their skillset, education and previous work serving our country.

What’s especially problematic is self-employment. There are a lot of unknowns for lenders here, and they’re almost always going to require at least two years of tax returns. Same goes for seasonal workers and those who work on commission.

Bankruptcy or Foreclosure

Foreclosure starts hit a 71-month low in November, according to RealtyTrac, but they’ve impacted hundreds of thousands of homeowners since 2008. More than 1.2 million people filed for bankruptcy protection in federal court in FY2012.

Each presents short- to medium-term obstacles to obtaining home loans. The waiting periods vary by event and by loan type. Bankruptcy means waiting anywhere from two to four years in many cases. The wait after a foreclosure can range from two to seven years.

Image: Mike Wilson, via Flickr

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  • Jeanine Skowronski

    All lenders have different underwriting parameters. You can find more about getting fully approved for a mortgage here:


    Thank you,


  • Elizabeth Banks

    I have a Seasonal position with the Federal Government from 2012, I usually work between 6 to 8 months a year, of course I only get pay for the time I work then they placed us in non-paying status and we collect unemployment until we have to comeback, I am having really hard time to get a home loan, I don’t have too much for down payment and I live in Texas, any ideas or suggestions?

    • http://www.Credit.com/ Gerri Detweiler

      Let’s see if anyone in the community has a suggestion for you.

      • Elizabeth Banks

        Thank you

  • Elisha Tolbert

    Will taking out student loans effect qualifications for a first time home loan ?

  • Val

    Can you be denied for an FHA loan if you are behind on rent?

    • http://www.veteransunited.com/ Chris Birk

      @Val: Thanks for writing. Lenders can require a Verification of Rent (VOR) in some cases. Lack of a satisfactory payment history over the previous 12 months can be a problem, yes. You’d need to talk with individual lenders about their policies.

  • Diane

    My husband was at his last job for 7 yrs. He wanted something closer to home so he’s been in this job for 3 mths inbetween jobs only for 1 week will we qualify for a home loan?

  • 14five

    Can anyone help? I live in Atlanta Georgia I am currently going threw a divorce and trying to refinance my home I am working in the medical feild and have my own adult daycare i run on the side for my self as a side business that I am required to file on my taxes but The IRS dose not require me to have a business license . but my under writer keeps asking for my a license what do I do?

  • alf

    Hello I cannot get approved for a conventional loan or FHA loan due to lack of credit history, me and wife have a 650cs how else can we get a loan for a house we live in dallas tx and we would be firts time home buyer looking for a less then 90K 4bd 2ba minimum

    • http://www.Credit.com/ Gerri Detweiler

      It’s not clear what you’ve tried already. Where have you applied and been turned down? Your credit scores aren’t below the possible threshold. Is that they only reason they are giving you?

  • http://www.Credit.com/ Gerri Detweiler

    What were the specific reasons were you turned down for the loan? Did you apply solely through one bank or credit union or did you work with a mortgage broker who works with multiple lenders? If not, you may want to go that route so they can help you find a lender who will work with borrowers in your situation.

  • Lourin Holt

    Hi my husband and I are looking to buy a home he has great credit and good income, but I do not work and my credit is very poor. I have student loans and some other debt. I am wondering if my credit will affect his chances of getting a loan if I am not on the mortgage. If so what are some disqualifying things that would affect us?

  • http://www.Credit.com/ Gerri Detweiler

    I don’t think the VA program is available for land purchases unless you get a construction to permanent loan, and I am not sure the scenario you are describing qualifies. I would recommend you talk with a VA loan lender.

  • Mari Alvarez

    I want to apply for a home loan with my boyfriend I have 3 questions and hoping to get a help soon enough I want to know if it will affect our eligibility if he has a school loan he owes 8,000 which he does make payment on and he has a car loan we both are in the loan but he pays for the car the balance on the car is another 8,000. I only have 1 year and 6 month in my current job is it possible to apply for a mortgage loan 6 months before my 2 years or should I just wait.

  • Kayla

    I am in the same boat here. I’ve been renting to own without signing over any paperwork (good family friend) and last week the lady pulled the rug out from under me and started paperwork with someone else on the house. Now I’m scrambling to find a home but where I live the oilfield is booming so we can’t find a easy rent house. Since I am self employed, and have been for 1.5 years, the banks have denied my loan request. Their only response is “we need two years of job history”. Any suggestions or way we can go through a different process?

    • http://www.veteransunited.com/ Chris Birk

      @Kayla: Thanks for writing. You might just keep checking with lenders to see if any are willing to work with you despite being shy of that two-year mark for self-employment income. Unfortunately, many want or need to see that track record.

  • http://www.Credit.com/ Gerri Detweiler

    Thanks for the great question! One of our mortgage experts wrote a story that included some of them. You’ll find it here: I Have Unpaid Debt on My Credit Report. Can I Still Get a Mortgage?

    We hope you find it helpful!

  • http://www.Credit.com/ Gerri Detweiler

    Good question! We are going to ask one of our mortgage experts to write about this in more depth but please be patient – it may take a little bit. In the meantime this may help: Can Your Spouse’s Credit Score Kill Your Mortgage?

  • http://www.veteransunited.com/ Chris Birk

    Lenders will typically consider investment properties riskier than a primary residence, which typically means more stringent requirements and higher interest rates.

  • http://www.Credit.com/ Gerri Detweiler

    Have you looked into a rent to own situation, or seller financing?

  • speedykat

    I live in NY and am under contract to mortgage home in Florida (secondary residence) without lender including my rent (which boyfriend pays, but I am on lease which holds me responsible) my DTI is excellent, Earn $54,000 year, Credit Score 743, put down 20%, same employer 20 years. Lender said no to Loan. Any hope with another lender.

    • http://www.veteransunited.com/ Chris Birk

      There’s always hope, right? I’d say start contacting other lenders and see what you hear. The credit bureaus will typically treat all mortgage-related credit pulls within a certain window as one hard inquiry, which helps people show around for home loans without damaging their credit.

  • http://www.credit.com/ Credit.com Credit Experts

    You would be better off asking the lender that — because although you are now married, marital status does not affect your credit score. Have you checked your own credit score? Here’s how to monitor your credit score for free.

  • ghelp

    I am waiting on a hearing for my disablity to be approved, but I am also waiting on a settlement to .can I buy me a house. Cash before I am approved

    • http://www.Credit.com/ Gerri Detweiler

      I don’t see why not if you can pay cash for it…?

  • ScottSheldonLoans

    Is it permanent disability, if yes, then yes this income will count. Short term compensation, then going back to work at some point does not count.

  • heathercurtis

    Cannot get a VA loan for the second time to short sale on our first home. Wells Fargo went after VA for 67,000. Lender says we qualify for a USDA loan but doesn’t know if both government departments communicate with each other?

    • ScottSheldonLoans

      Hello Heather,

      Yes, each entity VA, FHA, USDA are all overseen, buy HUD. Each is a HUD backed loan, which is probably why you are having an issue. 3 years is the stataute for getting a government loan post short sale. However, more scrutiny may apply by the lender whom you are applying with because the “shorted” original note (short saled property) was government backed.Plan on the 3 year time frame, could be longer subject lender discretion. However, should have the ability to do 20% down you can apply for a conventional mortgage which only requires a 2 year limit from the previous short sale. Make sure to provide to lender a copy of the previous grant deed and or final HUD1/settlement statement to the new lender whom you are applying with. Good luck!

      • Heather

        It has been 3 years since short sale. We are not sure right now on the VA COE… Still waiting on it. VA told our lender it may be a problem

        • Heather

          Well the VA came back with a big fat no. After lender prequalified us and we lost $550 on a home inspection and water tests. Why did lending company move forward with a VA loan without getting a certificate of elgibility?
          Now should we move forward with another government loan after it has been 3 years?

  • http://www.veteransunited.com/ Chris Birk

    @Susan: Thanks for writing. A loan denial wouldn’t directly impact your credit score, although a hard inquiry, such as applying for a mortgage, can have an affect.

  • http://homeloanartist.com Brad Yzermans

    You would be shocked and surprised at how many home buyers get what I refer to as ‘Wrongly Denied’ when applying for a home loan.

    Why? Because 99% of lenders and mortgage brokers apply ‘Overlays’ to the core/basic qualifying criteria.

    An ‘overlay’ is a guideline that makes qualifying more difficult and restricts buyers MORE than the core guidelines that are published by FHA, Fannie Mae, Freddie Mac, VA, or USDA.

    It’s like the old saying, “Beauty is in the eye of the beholder.” One lender has more restrictions (overlays) on what they consider to be a beautiful loan than another bank/lender.

    I recently got three buyers approved and funded who had been denied previously by the banks where they have their checking/savings account with and another had been denied by a mortgage broker who couldn’t figure out how to get the loan approved or who to broker to.

    Moral of the story, don’t give up, know what is a hard and fast guideline that no lender can give an exception to and what isn’t so you can find a lender who has little to no overlays.

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  • cathy

    my husband had a VA loan on his first house with his first wife many years ago. They ended up losing that house. Can he get another VA loan now or is a “one and done” situation?

    • http://www.credit.com/ Credit.com Credit Experts

      Hi Cathy — A lot would depend on the individual details and what you mean by “losing” the house. (foreclosure, deed in lieu, short sale, etc.) If the government suffered a loss on the loan, the law doesn’t allow the used portion of the veteran’s (your husband’s) eligibility to be restored until the loss has been repaid in full.

      To find out for sure, your best option would be to go to the source and contact the United States Department of Veterans Affairs directly. We did some research and they actually offer an online system for Veteran’s to get answers to these types of questions here: https://iris.custhelp.com/app/ask

  • Brittany

    I don’t know where to start with our situation. We made a lot of poor decisions early in our marriage that wrecked our credit. We now don’t owe for anything but our cars, but the damage is still there and we can’t get our scores up. If we go with our small hometown bank they will finance us based on our credit rating, but they want 20 % down and we don’t have 30,000 odd dollars just sitting around. So, now we are back to a government loan that doesn’t require that much of a down payment, but we can’t get that because of our credit. It’s as if we have no credit really. We just don’t know what to do . Any suggestions?

  • fred462

    I have been in my home 17 years went tru a very bad divorce now have bad creidt due to the divorce my fico score is only 565 but want to sell my home I am looking at putting $140,000 down on a home of $240,000 so I only need $100,000 but the bank say my score has to be 640 or better can any one help!!

    • Deanna Templeton

      Hi Fred – I know this isn’t exactly the answer you were looking for but because most lenders follow the same Fannie and Freddie underwriting guidelines (which require a minimum FICO score of 620-640 to qualify), it’s going to be difficult to qualify with a FICO 565. Before I answer your question, I first have to point out that your best option — and the wisest from a financial perspective –would be to focus on improving the 565 before trying to qualify for a mortgage loan. And even then, it may be worth improving your score above that 620-640 range so that you’re not forced into a mortgage with a horrible interest rate.

      Having said this, credit scores are not the end all/be all when it comes to mortgage lending. Mortgage lenders don’t rely on credit scores alone, and will also factor in LTV, DTI and other factors like downpayment and possible liquid assets that might protect them in the event of a default. If you haven’t shopped around, you may have better luck with a small community bank, who are often willing to consider other factors and also offer other mortgage programs outside of Fannie/Freddie requirements. Whenever you’re considering a mortgage, it’s wise to shop around because mortgage products vary greatly from lender to lender. Meaning, there’s a good chance you may be able to find a better deal if you shop around. In your case, I would probably avoid making hard applications right now, but there’s nothing wrong with picking up the phone and calling a few local community banks or credit unions, explaining what you’ve explained here, and asking if they offer any programs that might fit your current situation.

      In the end, I still think it would be better to work on improving your score first but it really depends on your personal situation. Divorce can be debilitating when it comes to credit damage but it’s not impossible to recover. How long it will take will really depend on the actual reason codes or score factors that were included with your scores. Mortgage lenders are required to disclose this information so it’s worth taking a look at the reasons behind your scores so you know where to focus for the best return on your improvement efforts. It won’t improve over night, but with 12-24 months of positive information, an increase of 75-80 isn’t unrealistic — and it would put you in the 640 range you’re looking for. If you decide to take this route, here are several resources that you may find helpful:

      How Soon Can I Get a Mortgage After Credit Problems?
      How to Rebuild Your Credit
      5 Things That Affect Your Credit Score
      How Long Does Negative Info Stay On My Credit Report
      Improving Credit and Refinancing a Mortgage After Bankruptcy

    • BigKahuna11

      If you put $140,000 down against 240,000 9 times out of ten you will get your fha and the rate won’t be as bad as you think either. Alot of new regs and loan programs out there for guys like you and me. It took me 5 years to get my VA disability and my wwife and I almost starved to death. In these cases, if you can show positive rental history over a good period of time along with your change in income then you fall into the underwriter discretion section depending on which loan you are wanting.

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  • Beth

    We have owned our home for 10.5 years, currently have a FHA loan & filed ch 7 bankruptcy 5.5 yrs ago . We are thinking about selling/buying a bigger house since we now have children & have outgrown our starter home. Since we aren’t first-time home buyers what is expected of us for a down payment – 20%? We are just going to break even if we sell our house with the housing market here. Also, if we sell this month how soon do we have to buy a house without being penalized? Just incase we don’t find a house right away.

    • christopher galdieri

      Hello Beth –
      FHA (Federal Housing Administration) offers loans for primary resident – that is the borrower is going to be living there full-time. The down payment is 3.5% for a purchase and the interest rates are pleasantly lower than that of a conventional mortgage. However, please keep in mind that the negative side of an FHA loan is the mortgage insurance you have to pay along with it. This mortgage insurance (MI) may sometimes offset the benefit of the lower interest rate. There is also a 0% loan with USDA Loans – which are loans designed to develop the more rural communities across the United States. There is literally a map that outlines these sanctioned USDA approved areas that you can find online.
      It is very important that you way your options carefully. You can of course determine if either of these are a good fit for you and your family by getting a simple free quick quote. There is no cost and no obligation. My name is Chris and I would be happy to answer any of your questions to the best of my ability. Have a happy and prosperous new year!
      Chris Galdieri
      Sr. Loan Originator
      Meadowbrook Financial
      NMLS # 260-985

    • http://www.msn.com Lajune

      Your just putting yourself in a worse situation by trying to buy another house after filing bankruptcy and you’re putting another financial burden on yourself.

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  • annabelle

    what is waiting period – I have extenuating circumstances where I was pressured into an approved short sale because I was denied modification and payments were not accepted destroying my credit report. I was told 4-7 years similar to foreclosure waiting period. Is that the case?

  • Patricia Daniels

    Is it possible to purchase a home if you receive disability insurance? And, how does student loan payments effect getting a morgage for someone on disability insurance?

    • ScottSheldonLoans

      Yes,as long as disability income is permanent not short term. Student loan payments, affect disability income the exact same way as normal/w2 income for example, no change.

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