Want to buy a house? Make it easier on you and your loan officer by being aware of the top 10 reasons homebuyers cannot get a mortgage:
1.) Bad credit: Before applying for a loan have an idea of what your credit scores and also how your credit history looks. Most government loans require a middle credit score of 640, while conventional loans are best closed at a minimum 700 score.
Ask yourself: Do you have at least three trade lines? Are your balances high (at the limit) or do you pay them off every month? Do you have any collections? All of these play a part in determining if you have good or bad credit.
2.) First-time homebuyer? It is slightly more difficult to close a loan for a first-time homebuyer than someone with a proven mortgage track record.
Ask yourself: Do you have a verifiable rental history? Do you rent from a private party or a management company? Always save your canceled rent checks, you may be asked to supply them!
3.) No down payment? It takes some money to purchase a home. If you don’t have the minimum 3.5 percent down for a Federal Housing Administration loan, or the 10 percent to 20 percent required for a conventional purchase, you may be turned down. If you are short on cash, you might consider asking a parent or close relative to provide “gift funds” to use as your down payment or reserve requirement.
4.) Employment: Make sure to disclose your employment history to your loan officer.
Ask yourself: Do you have a 24-month history of work in the same field? Do you receive a W-2 or are you self-employed? Have you been unemployed recently and if so have you collected “unemployment compensation?”
5.) Debt-to-income ratio: Be familiar with your “gross” (before taxes are taken out) income. You will have to gross enough income on a monthly basis to cover your mortgage (principle-interest-taxes and insurance) as well as any other debt from credit cards, auto payment, etc. A good rule of thumb is that if your monthly debt-to-income ratio is 45 percent of your gross monthly income or less, you may be a good risk.
6.) Too much debt: Remember that (see above) car payments, credit card payments and things like student loans (unless they are “deferred” for 36 months or more) are counted against you in your debt ratio. Conversely, if you receive child support or alimony and can prove that you will continue to receive it for 36 months or more, that will help your debt ratio and be counted toward income.
7.) Home value/appraisal: Whether you are making a purchase or trying to refinance for a lower rate, the value of your home is critical. Buyers/homeowners are required to pay for the appraisal in advance in many cases, so if the value is questionable, be prepared to run into some issues. The integrity of the property is as important as your integrity as a borrower.
8.) Declining market: If the appraiser checks a box on the report that states: “declining market” that means the neighborhood is going down in value and the lender may decline the loan based on the property even if you have 800 credit scores and 25 percent down.
Ask yourself: Where is the property located? You always hear, “Location, location, location!” as being important when you sell a property; it now is even more important when you buy.
9.) Broker? Banker? Conglomerate? Believe it or not the entity with which you apply for a mortgage as well as the loan officer handling the transaction is crucial. Huge national conglomerates may have tighter requirements than a local bank or a local mortgage broker. In addition, the licensed person you entrust to close your loan should be someone who is not only licensed, but also provides you with individualized attention and educates you as the process progresses.
10.) Stopped at the wire! Be careful not to have any last-minute changes in your credit (pay everything on time throughout the process), do not make any large purchases (hold off on buying the new truck until next year). and do not go out and apply for lots of new credit cards, and if your boss aggravates, hold off on quitting your job. Any of these things can kill your deal at the last minute.
Participating in a home mortgage process can be intense and invasive but ultimately rewarding when you know the home is yours. My advice is to be prepared for what is to come, and the process will be more enjoyable for everyone involved