Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!

Are You Applying for a Mortgage-These Things Might Ruin Your Chances of Approval- 150x150The 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.

Financial 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.

Debt

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.

Divorce

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.

Job Situation

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.

Lawsuits

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.

 

 

 

Assessing Your Current Financial Situation: Are You Ready for a Home?

Assessing Your Current Financial Situation-Are You Ready for a Home- 150x150Buying a home involves more than just affording the down payment and closing costs. Your lender needs assurances that you will be able to pay your mortgage on time each month and that you won’t default in the future. Assessing your current financial situation will not only help you determine if your lender will approve your mortgage loan, but will also help you find out if you are ready to buy a home. Being a home owner has many benefits, but it is also requires sacrifices and it is very expensive. If you are not careful, you might have an unpleasant surprise when your lender denies your application or, even worse, you realize that you can’t actually afford to own a home after you have made the down payment.

Your financial situation involves more than just having some money saved up when thinking of becoming a home owner. Your credit score, your income, the assets that you own, and your current debt are all very important factors of your financial situation. These factors can decide if you will receive the mortgage loan and can also help you decide if this is the perfect time to buy a home, or wait a while longer.

Your Credit Score

Your credit score will help your lender determine how big of a default risk you are. Based on your score, they will decide whether to give you the mortgage loan or not. Your interest rate will be largely dependent on what range your credit score falls in. Those attractive interest rates that lenders advertise are generally reserved for those with perfect credit scores. Perfect credit scores are obtained over a longer period of time, and are affected by factors such as the punctuality of your payments, your total debt related to the total credit available, and the types of credit that you are using. High credit scores mean lower interest rates, which save you thousands or more in the long run.

Your Income

Knowing how much you own before and after taxes is very important when you assess your current financial situation. Your lender will also want to see documents that show how much you make each month in order to find out if you can afford a mortgage. If you are self-employed, you will more than likely have to show additional documentation that proves your income. It is always a great idea to have all of the paperwork completed before applying for the mortgage just to speed things up a little.

Your Assets

Another factor that must be taken into consideration when assessing your current financial situation is the value of all your assets. Your savings, investments, and tangible property are all considered assets. It might be a bit difficult to determine how much each asset is worth, but it is recommended to underestimate an asset’s value rather than to overestimate it.

Your Debt

Credit cards, mortgages, and other loans, like car loans or school tuition, are all debt that must be considered when assessing your financial situation. Your lender will also be interested in this information, because typically lenders require a certain ratio between your income and debt. If your total debt, including your new mortgage, is more than 40 percent of your income, you might encounter problems when applying for a mortgage loan.

You can only find out if you are ready for a home if you assess your current financial situation. Not doing so can result in your inability to secure or pay off your mortgage loan, which will make your life much harder. Spending time and money only to be refused by your lender or buying a home that you can’t afford can be avoided by doing a little research into your financial situation and finding out if you are truly ready to become a home owner.

Do You Make These Mistakes? Don’t Kill Your Mortgage Refinance!

Do You Make These Mistakes- Don't Kill Your Mortgage Refinance-150x150Making lower payments on your mortgage is a great way to save money and make your life easier. The most common way in which you can reduce your monthly mortgage payment is by refinancing. This can also be the most beneficial way, which can save you a significant amount of money. But going from saving money to losing money is really easy when it comes to refinancing.

Refinancing might seem like a great idea at first glance, but it is not for everyone. There are several factors that have an influence on whether refinancing is good or bad for your situation. When refinancing, many home owners often make mistakes that, even if they won’t create problems in the beginning, will end up costing them in the long run. Refinancing is more complicated than it was years ago- the requirements are stricter, more paperwork is needed- so it’s easy for a borrower to make a mistake.

Here are the most common mistakes that borrowers make when refinancing, to help you avoid making them when you decide to refinance.

Convincing Yourself That Your Home is Worth More Than It Is

Being unrealistic about the value of your home is a sure way of ruining a refinance. Many areas have seen a decline in home prices, so your home’s price has probably fallen too. Most refinances today are denied because the home is appraised too low, so the lender won’t give out loans that are larger than the appraised value.

Not Shopping Around

You might have a great relationship with your current lender, and he might give you a special deal on your refinance, but it never hurts to shop around for an even better rate. Lenders can also reduce or even waive certain closing costs, which will also influence how much you will be spending on refinancing. Even a small difference in interest rate can mean a lot of money over time, so it’s important to look around, see which lender can offer you the best deal.

Not Taking Closing Costs into Consideration

One of the biggest reasons many home owners choose not to refinance are the high closing costs. The closing costs are one of the main factors that should be taken into account when deciding whether to refinance or not. Interest rates offered by most lenders will probably look very attractive, but you can end up losing money if you don’t take closing fees into account.

Letting Your Credit Score Decrease

Even if you find a very attractive refinancing rate and a lender who is willing to waive some of the closing costs, refinancing with a low credit score will most likely result in a waste of time. Not having a good credit score will attract high interest rate, or even the lender’s refusal to give you a new loan.

Creating New Debt During the Refinance

New credit cards or loans can seriously hurt your chances of being able to refinance. Additionally, you’ll have to provide even more documentation to justify the new debt. It’s best to hold off acquiring new debt until the refinancing process is over and your new loan is granted. It’s always best to keep new debt low, even after refinancing, and talk to your lender about what the implications are.

Refinancing Multiple Times

Refinancing repeatedly in a short period of time will not save you money. Each time you refinance, not only do you have to pay some hefty closing costs, but you are also resetting your mortgage, meaning that over time you will pay significantly more in interest. You can also end up having to still make mortgage payments during your retirement years.

Your decision to refinance should not be affected only by the low interest rates. Always take into consideration the closing costs when trying to figure out if refinancing is the right step for you. Not paying attention to all of the details can become very expensive with refinancing. All mistakes can be avoided by doing a little research, making refinancing an easier process, which will truly save you some money.

Student Loan Debt? You Can Still Buy a Home, No Problem!

Student Loan Debt-You Can Still Buy a Home No Problem- 150x150Having children and owning your own home is the classic American dream. Nowadays, there are plenty of obstacles that will stand between you and home ownership, one of the biggest being your student loan. Many student loans are comparable with the cost of a modest home, making it pretty difficult for a recent college graduate to become a home owner. Fortunately, there are some things that the young home buyer, who has recently received his or her degree, can do in order to buy a home before paying off that hefty student loan.

How Do Lenders Determine If You Qualify for a Mortgage?

Most lenders usually look no further than a mortgage applicant’s debt-to-income ratio. Before the recent economic recession, lenders were more lenient with home buyers who had student loans, but the housing market crisis has caused them to tighten debt-to-income requirements, in order to make sure that borrowers are able to pay back their mortgage loans. This, of course, was bad news for most recent college graduates, because having a good debt-to-income ratio with a student loan still being repaid is hard enough as it is.

When analyzing a borrower’s debt-to-income ratio to determine if they qualify for a mortgage loan, lenders typically review the front-end and the back-end debt ratios. The front-end ratio is related to the home buyer’s housing expenses, such as the principal, interest and tax, while the back-end ratio is related to other long-term debt that the borrower might have.

The student debt will, of course, be taken into account, and will affect the borrower in different ways depending on each person’s situation. For example, a single person with a student debt will have little chance of receiving a mortgage loan, a household with two debtors might encounter some difficulty when applying for a mortgage loan, while a household where only one person is in debt will be able to get a mortgage loan much easier.

Becoming a Home Owner with Student Loan Debt

Student life is very different than what you will experience after graduating college. A student’s life usually revolves around studying, mid-terms and parties, so when it is all over, real life might come as a shock, especially because you have to repay the money that you borrowed to pay for your tuition. Big student loans are very burdensome, and entry level jobs often pay just enough for you to be able to afford repaying your debt. Student loans can also have an impact on your credit score, so buying a home becomes that much harder. But there’s some good news, as well. By following these following steps, you can stop student loans from being such a burden, and get yourself on the right path to home ownership.

  • Minimize your student loans. Student loans are designed to help you pay for your tuition and receive the proper education that will later help you secure a good job. Student loans should not be used to pay for vacations or the cost of going out to restaurants or movies. Besides carefully planning your budget, you can also reduce your student loan by working part time or applying for financial aid. Don’t be fooled into believing that you will be able to easily pay off your debt after graduating, and that you can have fun spending a lot of money during college. Before you know it, the fun times are over, and you will find yourself having to face the harsh realities of life, so carefully budgeting and cutting unnecessary expenses is a sure way of making your student loan smaller.
  • Reduce your student loan debt. You may encounter some difficulty in finding a good job right after graduating college, so you should know that you have some options regarding your student loan. One option would be to call your lender and try negotiating your loan or your interest rate. Another option would be to extend your repayments, or even put a hold on your loan payments for a while, until your financial situation improves. Of course, these options will most likely result in having to pay a larger interest rate, so a proper analysis of your budget and future plans is required.
  • Avoid creating new debt. Taking out a new loan or applying for a new credit card while you are planning to buy a home will severely impact your chances of receiving a mortgage loan.
  • Keep making payments on your student loan. The only way to eliminate your debt is by paying it off, month by month, as agreed. Make paying off your student loan a priority and pay even more than the minimum payment required if you can afford it.
  • Find a co-signer for the mortgage loan. Having a co-signer in your situation will help you qualify for a mortgage loan much easier. One of your parents or a relative can co-sign your mortgage loan, which will make them responsible in case you are not able to make your monthly payments anymore.

Buying a home while still paying off your student loan is not as easy as it used to be, but it’s far from impossible. By simply making regular payments on your student loan, you are already at an advantage in the eyes of most lenders. However, before applying for a mortgage you should sit down and have a serious look at your budget and future outlook. Make sure that you will be able to pay off both student and mortgage loans at the same time, as missing only a few payments can have a deep negative impact on your life, and ruin your financial situation for years to come.

 

Low Mortgage Rates – How to Find Them

There are a variety of ways you can secure the best mortgage rate possible. As a consumer, you must do careful analysis of the housing market before you jump into a mortgage. Here’s a guide to find great mortgage rates.

Compare Rates All Around

compare-mortgage-ratesFirst of all, it’s crucial to shop around. As a borrower, you’re entering into one of the most important financial decisions of your life. It’s important not to rush headlong into something you may regret. All you have to do is look a variety of different places. You should investigate at your local bank, online, and with different lenders.

Always compare interest rates and make sure you’re aware of any fees involved with mortgages. Take a careful look at any prepayment penalties, and be sure that you can refinance without paying too many fees if the need arises.

The $1,000 Rule: A Rule of Thumb

Generally, a lender that charges you less than $1,000 in fees is offering a good deal. However, be on your guard to make sure you don’t get tricked into any hidden fees. Good credit will really help you lower interest rates on a mortgage. Before you get involved in any sort of borrowing scheme, you need to be sure that you’ve got the credit to earn your loan. You can get a free credit report from the three major bureaus, which are Experian, TransUnion, and Equifax. If there are any mistakes on your credit score, be sure to fix them.

Fix Credit Discrepancies

Don’t get stuck with an interest rate you don’t deserve. And don’t be afraid to dispute any credit discrepancies that might show up on your credit report. Paying your bills on time is the number one way to keep your credit score high. It makes it a lot easier to negotiate with a lender when you’ve got proof that you’re a responsible bill payer. If you’re applying for a mortgage, try to be sure you don’t have any late payments on your credit report for at least six months before you fill out the application. Lenders want to be sure that they’re entering into an agreement with someone who can pay bills on time. Foreclosure are extremely costly for most lenders, so they want to avoid that if it all possible.

Pay Down Pesky Credit Card Debt

pay credit card debtsYou absolutely must pay down any credit card debt that you’ve got. This will help you boost your credibility with lenders. Of course, the amount of principal you can put down will strongly affect your interest rates and your monthly payments. As a rule, it’s a good idea to put down as much principal as possible on a home. Don’t ever get involved in adjustable rate mortgages. Fixed rate mortgages are much better, as you can be totally aware of how much you owe every month. If you are applying as a couple, then you should carefully budget your monthly income so that you can afford your mortgage. Never fall behind on a mortgage. This will negatively affect your credit score and could drive interest rates up. Only obtain a loan from a lender that is licensed and regulated in your state. You will benefit highly by doing some investigative work before you enter into a mortgage.