Ever been enticed by a low mortgage rate only to find out you don’t qualify for the loan? Unfortunately it happens. The good news is 6 in 10 people actually do qualify for mortgage loans. While the majority of people looking for mortgages can qualify, many people can’t, for various reasons.
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Here are some of the more common reasons why would-be borrowers face rejection:
Credit scores too low: How low is too low? A score less than 620 is unacceptable by most lender standards.
Maxed credit card threshold: Is your balance more than 30 percent of the allowable line? Pay it down.
Multiple credit inquiries: Do they drop your score? Not always, but limit yourself to mortgage-only credit pulls within a 30-day period.
Paid-in-full debt: Does your credit report support this? If not, lenders will use debts reported even if balances are zero.
Co-signer obligations: Did you lend your score to someone? If so, plan to provide 12 months of canceled checks showing they make the payments to the creditor.
Debt that cannot be offset: Do you have another housing liability payment or a consumer loan for a vehicle? You’ll need double the income to offset each dollar of debt unless it can be paid off.
Not showing income: Are you self-employed? Not showing enough income under Schedule C reduces your borrowing power. It’s best to reduce consumer debts in such situations.
Un-reimbursed business expenses/losses: Taking these on your tax return could reduce your borrowing power.
Occupational status: Has your occupational status changed in the past two years? If so, it’s better to go from self-employed to a full-time W-2 employee, not the other way around.
Unsourced funds/cash deposits: Plan on using cash for your transaction? Not so fast; all monies must come from some kind of a bank account and show a clear chain from A to Z.
Using the down payment: Plan on tapping into your down payment funds and reimbursing yourself later? Don’t do it. Keep your down payment intact for mortgage loan financing throughout the process.
Transferring money: Moving money from different accounts during the loan process? Be prepared to show full bank statements of every account the money touched.
A reputable mortgage professional should be able to look at your credit, debt, income and assets and make a determination of whether you qualify for a mortgage. However, you should be willing to send your mortgage lender financial documentation including two years of tax returns and W-2′s, bank statements and pay stubs to support your loan qualification.
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