By Mike Miles
Here is a quick hit-list of the main reasons borrowers get denied for home loans. Each of these are talking points that could easily deserve its own post. Today, however, will just be a quick rundown. Knowing about these is important so that you can prepare and plan accordingly.
Late payments and non-payments will make your credit score drop down significantly. Additionally, applying for more loans and exceeding the limit on your credit cards will also negatively impact your score. It goes without saying that your credit score is one of the first things lenders check to know whether you are a risk or not. Apart from looking at your credit score, lenders will also check whether you have multiple late payments on your credit report. An inferior credit score is the main reason why most buyers fail to secure a mortgage.
Not enough down payment:
Underwriters will look at the amount of down payment you want to make when buying your future home. Generally speaking, a higher down payment is more desirable. So, to ensure you are not denied a mortgage because of inadequate savings, you should begin saving early. Other times, the buyer has enough cash for a down payment, but inadequate money is left in reserves.
Too much debt:
When buyers are looking for a mortgage, they will likely come across the term debt-to-income ratio. If a buyer has too much debt, it signals that you may not be able to repay the mortgage responsibly. Underwriters will analyze how much debt you have, and how much of your income remains after you settle these debts. Your debt ratio is just as important as your credit score.
Inconsistent employment history:
Underwriters look at employment history to provide confidence that there will be consistent income in the future. Inconsistent employment will encourage underwriters to ask more questions. More questions mean more time, paperwork and possibly the discovery of something an underwriter doesn’t like (reasons for job gaps … etc.).
Unreliable sources of income:
Having an unreliable source(s) of income isn’t a common reason for a mortgage denial, but it’s possible. Borrower’s who are self-employed are often considered a higher risk due to the possible unreliability. That’s not entirely accurate. Unreliability can exist more so when someone changes pay structure frequently/recently (W2 to 1099 and back to W2, cash income, royalty income … etc.).
Most loan applicants are not denied. For those who are denied, there are always ways to work on turning that denial into an approval. Some efforts take time (improving credit, saving money, length of employment). Working with the right loan officer will help pinpoint what you need to do as well as provide an accurate timeline needed.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268