Here are some of the top reasons home buyers get rejected for a mortgage. This post was originally written by fellow AR associate, Mykel Martin.
So if you’re thinking about buying a house or refinancing your current home. Saving for your down payment is just part of the picture. When you’re ready to consult a lender to find out if you can be approved for a home loan, the lender will base a decision on your credit profile, income, assets, job history and debt-to-income ratio.
Below are the top 7 reasons Buyers get turned down for a mortgage. It’s time to arm yourself with information that will ensure you get a “Yes” from your lender.
1. Poor credit is the #1 reason . . . Cash may be king, but a high credit score is even better. That is why it’s so important to maintain your credit score. That score, known as your FICO score, is one of the primary ways lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full. A borrower may have a large down payment or excellent equity built-up in their current house, but if their credit score is under 600, obtaining a new loan or refinance is going to be challenging. A score of 720 or higher generally indicates a positive financial history; a score below 680 could not only be detrimental, but lead to a higher interest rate. Even FHA (Federal Housing Administration) loans, which have traditionally catered to borrowers with lower FICO scores, have an average borrower credit score of 684, which is above the national average.
2. Insufficient Cash – If the borrower doesn’t have a large down payment (3.5% for FHA and 10%-20% for most other banks) and strong excess liquidity (cash), most banks don’t want to take the risk on funding their loan.
3. Lack of income – The borrower doesn’t have consistent proof of income for the last two years. Regardless of how good their credit score is or how much equity they have in their home, if they can’t show the bank proof of income, obtaining loan approval will be tough. This can be a big hurdle in the loan process, particularly for retired borrowers.
4. Unemployment – Most lenders want to see at least two years of job stability to issue a home loan approval. However, this is not an absolute guideline with some. If you change jobs but stay in the same line of work, it may not create a problem – especially if the job change is an advancement or an increase in income.
5. Self employment – Lenders are looking at self-employed applicants with a lot more scrutiny these days, making it very tough for these borrowers to get approved. You may have to put more work into finding lenders who are willing to work with you. Expect to pay higher interest rates than the ones you see advertised; those rates are for borrowers who are considered to be particularly creditworthy because of their steady, verifiable incomes and excellent credit scores.
6. Debt – We probably should have made this the #2 reason . . . Borrower has excessive debt and their debt-to-income ratio exceeds the bank’s guidelines. Your DTI – your debt-to-income ratios are the most direct indication about whether you are going to be able to afford to repay the money you want to borrow. Find out how to calculate your DTI here.
7. Lying on the application – Banks have learned their lesson and are no longer putting up with borrowers stretching the truth on their applications.
Today’s stricter mortgage guidelines are surely for the betterment of the industry and our overall economy, but at the same time many home buyers are quickly realizing that high FICO scores and stable income aren’t always enough in qualifying for a home loan. The TCR Group knows what matters most to you when buying or refinancing your home. Our Lenders are here to handle most every situation professionally and ethically. We value your time, finances and real estate goals and we want to make your home buying experience a pleasant and memorable one. When you or anyone you know is thinking of buying or Investing in the Inland Empire, feel free to contact us. We’re here for you when you need us.