Need a Loan but Keep Getting Declined? 5 Huge Reasons Why

If you need a loan but keep getting declined or wonder, “Why can’t I get a loan?” there could be a few reasons why. For example, you could have a low credit score, a limited credit history, or several other issues. Luckily, we’ve compiled some of the most common ones into one convenient article, along with solutions. Read below to understand why you can’t get a loan for real estate purposes–and the steps you need to fix the problem.

Main Takeaways

• One barrier to qualifying for loans is a low credit score. To offset this, you can find a high-value property to qualify for an asset-based loan. Furthermore, you should create a detailed presentation to convince lenders you have a game plan for success with your loan.
• Another issue could be insufficient income to cover a loan, or a high Debt-to-Income Ratio. Either way, the solution to this problem is generating extra income to afford a new loan.
• If you have a checkered employment history or payments, you may want to explain clearly why these happened and take responsibility for these mistakes. Lenders will appreciate your honesty.
• When you have a limited credit history, you should develop it so you can show lenders a “resume” of financial experience.
• If you have credit report errors, you need to address them and re-send an accurate report.

Table of Contents

• Low Credit Score
• Too-Low Income and Too-High Debt-to-Income Ratio
• Unstable Employment History, Defaults, or Payments
• Limited Credit History
• Credit Report Errors

Low Credit Score

If you have a low credit score, this can be a big reason you can’t get a loan. Most lenders, like our Baltimore hard money lending company, use credit scores to grasp how risky it would be to loan to a person.

Late payments, defaults, and high outstanding debt levels can all bring down your credit score. So, you should address these issues. In the meantime, however, you can apply for loans that put less stock into credit scores, like hard money loans. With hard money loans, you can make up for a low credit score with a strong collateral source.

Solutions: Find a High-Value Property and Game Plan For It

To explain hard money loans, a property’s value as collateral is prioritized over a borrower’s credit history.

Due to that, you should focus on finding properties with high potential for superior value and profitability. Undergo rigorous research and due diligence to find properties that align with your investment goals and promise considerable returns.

Here are some points to cover to ensure your hard money loan collateral is sufficient:

• Get a Property Evaluation: Before you offer collateral for a hard money loan, order a comprehensive evaluation of the property. This involves many critical checkups, like assessing its condition, marketability, and any potential problems that could impact its value. When you provide accurate and detailed information about the collateral, it strengthens your loan application and gives your lender more confidence in you as an applicant.
• Loan-to-Value Ratio (LTV): The Loan-to-Value Ratio (LTV) in hard money lending is an essential calculation that lenders use to assess a loan’s risk before approving it.

Furthermore, an airtight, all-things-considered plan can demonstrate your ability to handle this investment.

Your plan should outline more than just the basics, such as the property purchase price and renovation-associated price. Just as importantly, it should also delve into the specifics of the project such as:

• Market Analysis
• Renovation Details
• Projected Financials
• Exit Strategy

Too-Low Income and Too-High Debt-to-Income Ratio

Also, your lender may deny your application if they find your income is insufficient to cover the loan payments. Needless to say, you can’t get a loan if you don’t have surplus income to pay the debts you already have.

Similarly, a high debt-to-income (DTI) ratio can help determine how much of your income is spent on existing debt payments. It can find whether you have enough funds left to make room for another loan. If your DTI is insufficient, lenders may hesitate to approve a loan.

Solution: Search For Extra Cash Flow

The reason you can’t get a loan here is because of a lack of income. So, the solution is simple: find ways to earn more of it. This could include a side hustle, taking on extra hours at work, or seeking a bonus. This way, lenders can rest assured their loans will be repaid.

Unstable Employment History, Defaults, or Payments

Lenders prefer borrowers with a stable employment history, as it shows the borrower will maintain the income needed to repay the loan. As such, they may be concerned if the prospective borrower faces frequent job changes or periods of unemployment.

In addition, if you recently have had late payments, defaults, or other negative financial experiences, that could be why you can’t get a loan. Lenders may interpret these occurrences as signs of financial instability that could impede future loan payments.

Solution: Be Upfront, Communicative, and Willing to Negotiate

Honesty is the best policy. On that note, if you need a loan but keep getting declined, be transparent about your financial challenges. Provide a brief context for them so lenders can understand why they happened. Such good faith efforts can give them a fuller picture of your background.

What’s more, sharing such information shows integrity and accountability for fixing your financial issues. It fosters a mutually trusting relationship.

Limited Credit History

On the other hand, if you have a limited credit history, that may make it more difficult for lenders to judge your creditworthiness.

Without a proper credit background to prove your experience, lenders may hesitate to lend you money. This is especially true for a large purchase like real estate. As such, this could be why you can’t get a loan.

Solution: Build Credit and/or Negotiate Terms

Work on building credit with smaller steps, such as responsibly using a credit card. This way, you can develop a “resume” of sorts to show lenders you can manage your finances.

As an alternative to this, or to supplement the above strategy, you could try negotiating terms with your lender. By doing this, you can iron out terms that work for all parties. This discussion could include interest rates, fees, repayment schedules, good collateral, and of course, a carefully thought-out investment proposal.

Credit Report Errors

If your credit report contains inaccuracies, such as error-filled personal information, it could explain why you can’t get a loan. Any omissions, falsehoods, or even genuine mistakes can make your application seem less trustworthy, and in turn, ensure you can’t get a loan.

Solution: Leave no Stone Unturned

To avoid this pitfall, routinely review your credit report and address any errors. Do this meticulously and thoroughly, double-checking to ensure nothing falls through the cracks.

Need a Loan but Keep Getting Declined? MHML Can Help

All in all, when you ask yourself, “Why can’t I get a loan?” the answer could come down to perceptions about your financial management skills. To fix this, you can smooth out your finances, like your credit history, to build a better financial history. You can secure a profit-worthy property. To boot, you can stay prepared and transparent throughout the negotiation process.

If you need a loan but keep getting declined, our professionals can help. We can collaborate with you to find solutions to issues that prevent you from taking out our loans.

Even better, our loans have more flexible criteria by nature. Hard money loan (quick loan) approval is centered around one’s property value, first and foremost. This asset can speak for itself at the negotiation table, possibly beyond any other extenuating factors you have.

Most of all, borrowing terms can be customized to each borrower’s unique needs and background.

All these factors can open the door to finally getting that loan acceptance letter. So, give us a try before you give up on your loan-related plans altogether. Contact us today to have a second chance at your real estate investing aspirations.