As a homeowner, you may mistakenly believe you can borrow money automatically against the equity in your home. After all, it’s your own money … right? The fact is, that lenders can and do deny home equity loan applications all the time. They do it for a variety of different reasons.
How Lenders Judge Your Qualifications
Your credit score is one of the most important factors lenders use to evaluate loan applications. Credit reports contain information on existing debt, late payments, credit history, bankruptcies, delinquencies, the types of credit you are using, and credit applications. When you’re trying to get a home equity loan, poor credit will derail your efforts.
Lenders also look at your employment record, often approving applicants who have a 2 year job history. Needless to say, consistent earnings are a must as well.
Finally, the amount of equity you have in your home and payment history will also have a bearing on the lender’s decision, so keep that in mind.
5 Common Reasons Loan Applications Are Rejected
- History of Late Payments. Your payment history accounts for 35% of your credit score. Every debt-related account you have lists how late the payments were, how often you made late payments, and the last time you made a late payment. Collections, bankruptcy, and other negative information found on your credit report is also factored in. Lenders use this information to assess how you manage debt. If your history shows you are already struggling to make payments, lenders will be hesitant to loan you any money.
- Change in Job Status. Lenders like to see 2 years of stable employment. If you’ve changed jobs more than 3 times in a 2 year period or have been unemployed for significant periods of time, you will have trouble getting a loan.
- Bank Account Red Flags. When you apply for a loan, you’ll have to submit several months of bank statements. This allows lenders to see how stable your finances are and to check for any suspicious activity. Reg flags include multiple p.o. boxes or address changes, large cash payments, and wire transfers from areas of the world known to be tax havens.
- Omission of Information on Application. It’s always a mistake to leave out information on your application, like unpaid federal income taxes and alimony, because you think it will hurt your chances of getting approved. Even if the omission is unintentional, the error will cost you.
- High debt-to-income ratio. If the debt you’re carrying exceeds 45% of your gross income, you probably won’t be approved for a loan. You might have some leeway if you have a lot of equity in your home and a great credit score though.
Why Knowing Your Credit Score Matters
It’s important to know what your credit score is and that all the information on your credit report is accurate. Credit scores have become increasingly important to lenders when determining who gets approved for a loan and what rates and fees they charge borrowers.
Lenders have some discretion when it comes to deciding how much importance to give a specific number, but the following is a good guideline.
- 680 or higher: You get the best interest rate.
- 620 – 680: May go to the underwriter for a decision. The lender might give you the best rate if your debt to-income-ratio is low enough. If you don’t qualify for the best interest rate, you may still get a loan at a higher one.
- Below 620: Goes into the “denial recommended” category.
Loan Denial Statistics
A study conducted by a major lender and published April 24, 2019, shows the major reasons applications are denied.
- Credit history (includes credit score): 26%
- Debt-to-income ratio: 26%
- Collateral: 17%
- Failure to complete applications: 14%
- Other: 10%
Have You Been Denied For a Home Equity Loan?
Poor Credit? Job Loss? No Problem! The Skydan Equity Program
If you’re concerned that your credit issues will be a barrier to home equity loan approval, we have the solution. Qualifying for our sale and leaseback program doesn’t depend on your credit score, your job history, or any issues you might have with the IRS. All you need is equity in your home.
We will buy your home and rent it back to you with no rent due for up to 2 years. After that, you have the option of buying your house back from us (original purchase price plus deferred rent) or selling the house and keeping any profit you make (after repaying Skydan).
Skydan isn’t a bank, a mortgage company, or a lender. We won’t charge you expensive interest, points, or fees to transact business with us. You won’t even have monthly payments for up to 2 years. This will give you the time and breathing room you need to job search, catch up on bills, or pay off tax liens.
We’ve simplified and streamlined the approval process in order to get cash in your hands as fast as possible. All you have to do is:
- Complete the application.
- Set an appointment for a Skydan representative to visit your home (3 -5 days).
- Receive a determination of the cash you qualify for (7 – 10 days).
- Receive the agreed-upon cash payment (30 days or less).
- Keep living in your home rent-free for up to 2 years.
Skydan’s home equity loan alternative will help you avoid bankruptcy, foreclosure, and the additional debt that comes with a home equity loan or line of credit. You don’t have to put your home on the market for 6 months or more waiting for a buyer to make a lowball offer. You also don’t have the stress and worry that comes with trying to find another place to live.
Skydan Equity Program is the alternative to home refinancing in Chicago. If you live anywhere in the Chicagoland area, including the communities of Cook County, Will County, DuPage County, Lake County, Kane County, or Kendall County, give us a call today. We can help you turn the equity you have in your home into a brighter and more secure future