The initial cost of purchasing a house or an apartment can be very high. A 10 to 20 percent down payment plus several closing costs means that you will have to pay thousands of dollars before you can even move into your new home. But having this kind of money available won’t guarantee that your mortgage application will be approved. Lenders want to protect themselves from default, so they will take the necessary precautions.
This means that they will take a close look at your financial situation, which includes your credit score, income and savings. They will also look into things like recent debt, your marital status and your job situation. Getting approved for a mortgage can be pretty difficult if your lender encounters red flags when checking out your finances and parts of your personal life. This article will take a look at what lenders may consider reasons for not approving your mortgage loan and what you can do to get out of that situation.
First of all, lenders look at your credit score. People usually think that credit scores only affect the interest rate that they will receive or the down payment that they will have to make. Low credit scores can also ruin your chances of getting approved for a mortgage. Lenders use credit scores to determine how big of a default risk you are, so a low credit score will probably result in being denied for a mortgage loan. Best case scenario, they are willing to give you a mortgage loan, but at much higher interest rates, and with the requirement that you make a down payment that is larger than 20 percent.
Another aspect of your financial life that lenders look at is your income. Lender requirements usually state that your housing expenses not exceed 28 percent of your gross monthly income. The good news is, besides your salary, you can count other sources of money as income. Bonuses and commissions, social security or veteran’s benefits, child support, or workman’s compensation are all considered income and can help you get a loan if your monthly salary is too low.
Lenders will want to know how much debt you have, and how it relates to your income. Generally, lenders require that your housing debt plus other debt not exceed 43 percent of your income. New debt is especially damaging to your chances of being approved for a mortgage, because the lender will consider that you won’t be able to pay off the debt without encountering problems along the way. Making a major purchase by taking out a loan or co-signing for a family member before applying for a mortgage loan should be avoided in order to increase your chances of approval.
Applying for a mortgage loan while you are divorcing your spouse can make things difficult, or even result in the rejection of the mortgage application. Lenders want to avoid being caught in the middle of a battle over marital property, or giving out a loan to a family where one of the members will stop paying for it. Not mentioning to your lender that you are currently dealing with divorce is a bad idea, as they will most likely find out on their own and reject your application.
Borrowers who have kept a steady job for at least two years before applying for a mortgage are seen as having a smaller risk of default by lenders. The risk exists, but recently changing jobs doesn’t mean that your application will be rejected. Finding a new job in the same field as your old one, but for a higher salary won’t cause you any problems when applying for a mortgage loan. If you plan on switching jobs, try to wait until your mortgage loan application is approved. Also, if you are between jobs, you will probably have to find a job and keep it for at least two years before a lender will consider granting you a mortgage loan.
Being sued or even suing someone can interfere with being approved for a mortgage loan. If you lose, you will either have to pay a settlement or have to pay some large attorney fees, making you appear unable to pay your mortgage in the eyes of a lender. Just like when divorcing, you should be truthful when the lender asks you if you are involved in any lawsuits.
There are plenty of things that can ruin your chances of being approved for a mortgage loan, but, with the proper research and knowledge, you will be able to analyze all these problems and resolve them. Even if it takes a couple of years, you should start taking care of anything that might interfere with your loan application approval.