Bad Credit

• The borrower's credit score indicates how well he has managed credit in the past, so it is a useful predictor of how he will manage this loan. A borrower who has a bad credit score due to late payments, bankruptcy, court judgments, foreclosure, maxed out credit cards or other reasons is a risky one. The underwriter typically has an absolute cutoff score below which all applications will be rejected and a window of scores just above that in which the borrower's credit is closely evaluated to determine whether it is good enough.
  
  

High Debt Load

• Underwriters turn down loans for borrowers who have very high monthly debt payments and are not likely to be able to afford the new loan payments on top of that. In general, a mortgage payment plus property taxes and homeowners insurance should be no more than 28 percent of a borrower's gross income. When adding in all other monthly debt payments, the total should not exceed 36 percent of the borrower's income. The underwriter can reject the application if the borrower cannot provide proof of his income to support the mortgage.
  
  

Not Enough Cash

• Borrowers must have enough cash to cover the down payment and the closing costs. Plus, underwriters usually like to see a cash reserve of at least two months' worth of mortgage payments after closing. Underwriters will look at bank statements and other documentation to get proof of the cash reserve before deciding whether to approve the loan.
  
  

Time Frame

• Underwriters can turn down loans at any stage of the application process. Someone who has a horrible credit score will likely be turned down right after applying. Problems with cash reserves might take a little longer to discover. Even when a mortgage is ready to go, a significant change to the borrower's situation, such as a job loss or new debt, can cause an underwriter to turn down the loan right before it is scheduled to close.