While you may have the capacity to make your monthly mortgage payments, most lenders won't approve your loan if you don't meet the baseline requirements for a conventional mortgage, including a credit score, verifiable income, and an appealing debt-to-income (DTI) ratio.
Conventional conforming loans: 7.6% denial rate. Refinance loans: 24.7% denial rate.
A poor credit history or low credit score can prevent you from getting approved for a personal loan. Too much monthly debt relative to your income—your debt-to-income ratio (DTI)—can lead to a lender rejecting your loan application.
It isn't hard to get a conventional loan if you have a 620 credit score and 3% down payment. You can get an FHA loan with a lower score, but you need a slightly higher down payment (3.5%).
There are no specific income limits for most traditional mortgage loans, such as conventional loans or FHA loans. Lenders typically focus on your income to qualify for a mortgage by looking at factors like your debt-to-income (DTI) ratio, credit score, and overall financial stability.
Structural Issues
If the appraiser notices problems with the foundation, roof, or load-bearing walls, these issues can lead to a failed appraisal. Common structural problems include: Foundation Cracks: Large or significant cracks in the foundation can indicate serious underlying issues.
High debt-to-income (DTI)
Before approving you for a mortgage, lenders review your monthly income in relation to your monthly debt, or your debt-to-income (DTI). A good rule of thumb: your mortgage payment should not be more than 28% of your monthly gross income. Similarly, your DTI should not be more than 36%.
Can My Security Deposit Be Returned If My Mortgage Is Denied At Closing? If you have a contingency in place that includes an offer and purchase contract, you may be able to get your earnest money back. However, if you don't have it, you could lose it.
Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
Conventional Loan Minimum Credit Score
In most cases, you'll need a credit score of at least 620 to qualify for a conventional loan. When you apply, your lender will check your credit history to determine if you have qualifying credit. If you don't, you might not get approved for the loan.
Let's discuss what underwriters look for in the loan approval process. In considering your application, they look at a variety of factors, including your credit history, income and any outstanding debts. This important step in the process focuses on the three C's of underwriting — credit, capacity and collateral.
Drawbacks include stricter requirements to qualify, large payments if market rates increase, lack of 5% equity requirement, and additional fees if borrower has a less than excellent credit score.
In most cases, conventional loans require a credit score of 580 or higher. Lenders also look for excessive debt or certain negative events on your credit report, such as a bankruptcy or missed payments—which may make it harder for you to qualify for a conventional loan.
The short answer is yes. A thorough appraisal conducted by a licensed appraiser is almost always required for home loans in California. This is true for conventional, FHA, and VA loans.
The conforming mortgage loan limit for a single-family home in 2025 is $806,500, an increase from $766,550 in 2024. Conforming loan limits are based on home prices throughout the U.S.
If there are any changes to your credit score or employment status, your loan can be denied during the final countdown.
Two months' worth of bank statements is the norm because any credit or deposit accounts older than that should have appeared on your credit report.
Reasons your mortgage application may be denied include a dip in your credit score, increased debt, paperwork errors, a low home appraisal and unverified cash deposits.
Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.
Simply, if you're preapproved for a mortgage there is still a possibility you could be denied after. In fact, approximately 5,741 VA loans were preapproved but not accepted according to 2022 HMDA data. Let's explore more about what it means to be preapproved for a home loan and why you could be denied after.
If you have derogatory marks on your credit report, such as missed payments, late payments, bankruptcies, etc., your chance of obtaining a loan is minimal at best. If you have a black mark on your credit report, you can contact the reporting entity and ask them to have it removed.
Forgoing a home inspection does not typically affect the approval of your conventional loan, as the loan is primarily based on your creditworthiness and the property's appraisal value. However, it could impact your future financial situation if significant property issues are discovered later.
Common Reasons for VA Loan Denial in Underwriting
According to HMDA data, 12.93% of VA loan applications received a denial in 2022, compared to 17.29% of FHA loans and 17.9% of conventional loans. While not uncommon, many scenarios may be preventable.
The process can take from several days to a week. Conventional loan appraisals have a slightly longer timeline, and vary based on factors such as property complexity, location, and the workload of the chosen appraiser. On average, conventional loan appraisals may take around two to four weeks.