Buying a home is such an exciting time. It’s also a time filled with lots and lots of paperwork. Loan applications, copies of tax returns and bank statements, don’t forget proof of income. Your lender is going to want them all! After all, it’s their job to uncover any signs of trouble when it
comes to financing a home.
Waiting to find out if your loan has been approved can be a bit nerve-wracking. If you’ve done your homework ahead of time, chances are you won’t have any problem qualifying for a mortgage. But it’s not a done deal, till it’s a done deal. Even with pre-approval your mortgage could be denied based on a number of factors.
Here are 5 potential problems to be aware of that could end with a big rejection stamp on your mortgage application.
Your lender will pull your credit score as part of the lending process. If your FICO score is too low it could be a no-go, or at the very least mean you’ll get slapped with a higher interest rate. Your FICO score should be higher than 620. Your credit history is another factor that could come into play. Lenders consider how many derogatory remarks are on your credit report (for example: foreclosure or bankruptcy). It’s a good idea to check your credit report once a year to make sure everything is correct. You can get them for free.
TOO MUCH DEBT
Lenders will take a close look at your monthly debt responsibilities versus your monthly income. Your monthly debt includes things like car payments, minimum payments on credit cards, student loans, and the projected mortgage payment. If that ratio is too high, it could be a
problem. Typically it needs to fall under 43 percent. If not, you may have to modify how much you can spend on a home.
Lenders are fans of stability and consistency. Changing jobs too much can count against you. So can leaving one job to start your own business. Most traditional mortgages require 2 years of tax returns showing consistent employment in order to qualify. Lenders want to know you can hold down a job so you can pay off the loan. Contrary to what you may think, using bonus money or overtime income isn’t necessarily a big help either if the amounts vary from year to year. Remember, lenders want stability and consistency.
HOME APPRAISAL FALLS SHORT It happens, more than you think. That home you loved just didn’t appraise for the asking price. Since the loan is based on a percentage of the appraised value that is problem. The lender will likely reduce the amount you can borrow. Now what? You have a couple of options here.
The borrower always has the right to ask for another appraisal but rarely does this mean you will get a higher one.
- You might want to shop around and talk to different lenders.
- Negotiate with the seller to lower the price of the home based on the appraisal.
- Increase the amount of the down payment including the difference between the purchase price and the appraised value.
Unfortunately, the list for why your mortgage application is rejected doesn’t stop there. The good news is Real Estate Agents have seen it all before. Issues like unpaid tax liens or not a big enough down payment aren’t new for them. Work with your agent to determine the next
best step for your situation. While it may feel like the end of the line to you, most agents will tell you that there is a solution, even if it takes a little more time. You’ll get your dream home, yet. We know it!