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6 Reasons Why Your FHA Loan Might Get Denied


Anyone can apply for an FHA loan. However, not every application gets approved for an FHA loan.

Different FHA-approved lenders have different criteria to approve FHA loan applications. Nevertheless, here are a few common reasons that can lead to denial of FHA loan applications:

Low credit score

500 is the minimum credit score required to qualify for an FHA loan, as per the Department of Housing and Urban Development. But most of the FHA-approved lenders consider a credit score of at least 600 while approving loan applications. If your credit score is lower than this, there are high chances that your application might get denied.

Not making the required down payment

You will have to pay up at least 3.5 percent of the purchase value of your home as a down payment in order to qualify for an FHA loan. For some reason, if you are not able to pay up this amount or haven’t sourced it properly, your lender or the loan officer whom you might have contacted through FHA leads might reject your application.

High Debt-to-Income Ratio

Debt-to-income ratio is one thing most FHA-approved lenders might consider while approving FHA loan applications. If more than 43 percent of your gross monthly income is going towards paying back your debts, the lender may not consider you as an ideal candidate for an FHA loan. There are a few lenders who make exceptions to this rule, but even if approved you may at some point of time find it difficult to pay back your FHA loan because of your other debts.

Not having enough funds to pay up for closing costs

Apart from the 3.5 percent down payment, you should also have enough money to cover your closing costs, if you want to qualify for an FHA loan. You can source these funds in the form of a gift or from any other legitimate source. But if you can’t accumulate the necessary funds to close the loan, your lender might deny you the FHA loan you have applied for.

Property not as per HUD guidelines

The property that you are planning to purchase should be as per the guidelines of HUD if you want your loan to be approved. This is why the lender will first get an appraisal conducted on the property you have chosen. Your loan might get denied if the appraisal value of your home is less than the purchase value mentioned in the agreement. Any uncorrectable discrepancies revealed in your appraisal could also be the reason for the rejection of your loan.

Recent foreclosure or bankruptcy

If you have been a part of a foreclosure event or bankruptcy in the past year or so, your loan might not get approved. The waiting period might be longer than a year depending upon the lender you choose and the reasons that might have led to such an event.

That said these reasons should not discourage you from applying for an FHA loan. In fact, there are many compensating factors that the HUD allows to qualify borrowers for FHA loans. Nevertheless, it would be better to get pre-approved to make sure your FHA application gets approved by your mortgage lender.

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