The process of buying a home involves much more than just finding a homeowner and money changing hands. To start with, you’ll need to apply for a mortgage and get approval to cover the entire cost of a home. The bigger a downpayment you have, the more available and favorable local mortgages will be. However, not all mortgage applications are approved, and not always for the reasons you might think.Verify my mortgage eligibility (Oct 22nd, 2020)
Whether you are preparing your first mortgage application or recovering from a denied application, we can help. Let’s start with a quick run-down of why mortgage loans can be denied during review. The more you understand the approval process, the better chance you will have of successfully attaining a mortgage for your home purchase.
1) Low Credit Score
The single biggest obstacle between first-time home buyers and getting a mortgage is credit score. Your credit score, ideally, needs to be upwards of 650 but you may be able to find a loan with a score as low as 580. Your credit score is like your measure of financial trustworthiness, specifically with lent money.Verify my mortgage eligibility (Oct 22nd, 2020)
If you haven’t been directly tending your credit score, there’s a good chance that your score could be higher. Use and quickly repay credit cards. Take out and quickly repay debts. Never miss an account payment and clear up any existing debts. Your credit score will rise accordingly.
2) Not Enough Downpayment
The next problem might be a low downpayment amount. Like your credit score, the downpayment is another measure of your ability to pay back a mortgage once it is taken out. Your downpayment represents the amount of money you can reasonably save up with your current income and living expenses.Verify my mortgage eligibility (Oct 22nd, 2020)
Less than a 20% downpayment and you’ll likely need mortgage insurance. At the low end, you may find banks reluctant to lend.
3) Too Much Debt-to-Income
Your debt-to-income ratio is a measure of how able you are to pay off debts at your current earning rate. Banks ask about your income because they want to know you can meet the mortgage’s repayment schedule. If you’re already loaded down with other debt, then they can’t trust the usual measurements because your discretionary spending is split too thinly into debt repayment.Verify my mortgage eligibility (Oct 22nd, 2020)
Clear any small debts before you apply for a mortgage to improve your debt-to-income ratio.
4) Not Enough Income-to-Payment
Even if you have no debt at all, the bank will still be concerned about your ability to meet mortgage payments. If your income is too low, especially when calculated with local living expenses, a lender may deny your mortgage application based on the disbelief that you can pay it. If a lender tells you this reason, rethink your finances. They may have a better understanding of how far your income will go in this home purchase than you have.Verify my mortgage eligibility (Oct 22nd, 2020)
5) Change of Employment or Address
Don’t make any major changes to your life when you’re submitting mortgage applications. A mortgage application is based on the current circumstances of your life. Your current job, home, lifestyle, family structure, and so on can all influence whether a bank feels you can repay the mortgage you have proposed.
Changing your job after applying will change the circumstances. This means the application details are no longer relevant and the application actually must be rejected. If you have no choice about changing jobs, expect to re-apply for mortgages when your new situation settles down.Verify my mortgage eligibility (Oct 22nd, 2020)
6) Home Appraisal Troubles
Finally, there are sometimes problems when a home is appraised. Even if you have great credit, no debt, and a solid income, the home you have chosen might not be something the bank can comfortably back. Too much land, too old a home, too many renovations needed, or too far from civilization are all qualifications that can cause a bank to think twice about lending. As are critical maintenance problems like a cracked foundation or rusted-through interior plumbing.
The lender will send an appraiser who will assess the monetary value of the home as an investment. If that scores too low, the bank may deny your mortgage loan. They do this because a mortgage is, essentially, the bank taking ownership of the house until you pay them back. If you fail to pay, they get the house. If the house can’t be resold for the amount of the loan, the bank loses. So they like to make a sure bet on appraised houses.Verify my mortgage eligibility (Oct 22nd, 2020)
Talk to an appraiser to find out how to select or improve a home for mortgage approval.
Ready to begin your successful home purchase? It all starts with mortgage approval. Whether you’re buying your dream home or choosing an investment house to flip, get your mortgage squared away so the sale process can run smoothly. Contact us today to find out more about smart financial decisions for home purchasing and home flipping.