Settling on the first lender that you come across is never a good idea. Only by shopping around can you find mortgage loans with lower interest rates and attractive terms. You will have to look at all the characteristics of the mortgage loan in order to find the one that suits you best or you may end up spending more than you have to.
Looking at mortgage offers and finding a lender which can give you the best interest rate and terms on a mortgage loan is important when trying to become a home owner. But even more important is finding a lender who is willing to give you a mortgage loan, especially if you have a low credit score. Every lender has its own qualification requirements, which can differ greatly from one lender to another. Factors such as your credit score, debt, income, and the area in which the property is located in all have a large influence on whether you are going to be approved for a mortgage loan and how much you are going to have to pay.
Lenders may advertise low interest rates and lenient approval standards, but you will probably have an unpleasant surprise once you apply for a mortgage and find out that the advertised rates are reserved for those with perfect credit scores and high incomes.
Why Will Some Lenders Deny your Mortgage Application?
Most mortgage loans already have their requirements established by the government agency that is backing the loan. Government-backed loans are associated with these agencies: Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the United States Department of Veterans Affairs (VA). The fact that the loans are backed by these government organizations is not considered enough of a guarantee by lenders, so they have their own, stricter requirements.
One of the loan requirements that can result in a mortgage application denial is your credit score. The Federal Housing Administration can guarantee mortgage loans for buyers with credit scores as low as 500, but most lenders will deny all applicants who have a credit score that’s lower than 600. Also, most lenders have special requirements for those who don’t have a perfect credit score. For example, borrowers with a credit score that is under 680 may be required to provide additional documentation related to their financial situation.
In order to qualify for the FHA Streamline Refinance, you must pay your mortgage on time for 12 months without missing a payment. But the lender who will refinance the loan will have additional requirements, such as checking your credit score and income.
Fortunately, not all lenders have the same requirements, which means that you can easily be approved by a different lender, or even get better terms on your mortgage. Generally, smaller lenders and credit unions seem to be more flexible than large lenders, especially if you give them reason to believe that you are not a high default risk, even if some aspects of your financial situation are not in good shape. Mortgage brokers can also help you find a mortgage loan if you think you can’t do it on your own. They charge a fairly large fee, but it may be worth it, especially if you have a strong feeling that most lenders will deny your application.