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If you are a first time home buyer, a rejected mortgage application can seem like the end of the world. However, a denied loan request is no cause for undue alarm or discouragement; and it certainly does not have to mean the end of your dream of buying a home. Read on to see how you can find out why your application was turned down and what you can do to make sure that it never happens again.

Some Common Reasons For Rejection

- Incorrect appraisal

When reviewing your application, the lender will consider the market value or the appraised value of the property in relation to the loan amount. If this ratio, known as the Loan-To-Value (LTV) ratio, is too high, it might be unfeasible or even illegal for the lender to approve the loan. In such a case you need to reappraise the property and renegotiate your deal with the seller. You could also think about changing your real estate agent to someone who is more familiar with the property rates in the neighborhood.

-Insufficient Down Payment

The lender will also carefully consider your financial information and your Verification of Deposit to make sure that you are sufficiently capitalized to cover your closing costs as well as your down payment. If the lender finds that this is not the case, your application will be turned down. If your application has been rejected, owing to lack of funds, then your best bet is simply to wait and save everything that you can. It might seem like a difficult thing to do, but buying a home is one of the biggest decisions of your life and it is best not to rush into it until you are financially prepared.

-Insufficient Income

It can be hard to digest the fact that your income is not sufficient to support your mortgage. However, it is better to come to grips with it than to take on financial obligations that you will not be able to meet. A monthly mortgage payment that you cannot afford is not only risky for the lender, but it can result in a lot of financial trouble for you as well. It would be a good idea to work out exactly how much you can afford to pay as a monthly mortgage payment and set the budget for your home accordingly.

-Bad Credit

You should obtain a copy of your credit report from the credit bureau and make sure that everything is in order. If there are any errors in the report (which is not unusual), you should inform the bureau and have it corrected. Sometimes it can be difficult to get the credit bureau to cooperate in making the corrections to your report. In that case, as a last resort, you should add a statement of contention to your report so that lenders who are reviewing it might ask for your side of the story.

Finally, keep in mind that a rejected loan application is not the end of your aspirations to home ownership. Analyze the reason for the rejection. Sometimes, it might just be a small problem that can be easily fixed. Other times, the rejection might really mean that you are not yet ready for home ownership. Do not despair if this is the case. You should simply take it as encouragement to do everything you can to prepare yourself financially for the big move.