Applying for a mortgage can be extremely stressful and, if you aren’t familiar with the requirements to qualify for a mortgage, even more so.
It can be very disheartening if your bank denies your mortgage request and there can be consequences if you placed an offer on a home without including a condition for financing assuming you would qualify for a mortgage because you could previously. These days it’s not that simple.
Even if your bank said no however, there still may be options to get you into a home.
Here are some of the common reasons why you may have been declined.
• Even though today’s mortgage stress test rate is 5.25%, the contract rate on the mortgage may be 5.69% and you must qualify to make higher payments at the contract rate plus 2%, So that 7.69%. All federally regulated lenders (banks, etc.) have this requirement, as do most credit unions and other prime mortgage lenders.
• Poor credit history. Most mortgage lenders want to see a good credit score of 680 or over in order to qualify for best rates.
• Your income is too low to qualify for the amount of mortgage that you are requesting. You must have sufficient declared income to not only afford to pay your mortgage payment, but also property taxes, heating costs and all the other monthly expenses such food, transportation, etc.
• Your down payment is too low. For properties under $500,000, the required down payment is 5% of the purchase price. For properties over $1 million, the required down payment is 20% of the purchase price. The minimum down payment required for homes between $500,000 and $1 million is 5% of the first $500,000 and 10% of the value over $500,000.
• Employment history – Salaried employees with guaranteed income will have a much better chance of being approved than someone who is self-employed, particularly if the business has been recently established. If you aren’t currently working, an approval will be close to impossible.
• Issues with the property – Lenders are not only approving you but also the property. If issues such as structural damage, mold, etc. exist the repairs could be costly. This type of property will not meet the requirements of many lenders.
• The property value appraised too low and does not support your mortgage request. This could require a higher down payment to complete a purchase or in the case of a mortgage refinance there may not be sufficient equity in the property as the maximum amount available is 80% of the appraised value.
As a mortgage broker, I may be able to guide you so you are in a position to have a stronger mortgage application.
We can look at credit repair to improve your credit score or a plan to get some debts paid off, assess the type of property you are considering and establish a realistic budget so you can house hunt with confidence and come up with a savings plan to increase your down payment. There are also alternate lender options available for those who are newly self-employed or who may not fit within the lending guidelines of a traditional lender such as a bank or credit union.
A mortgage pre-approval in advance of house hunting can also prevent disappointment.
Please give me a call at 1-800-561-2679 to discuss possible options if your mortgage request has been declined and we can sort out a plan. You can also book a time for a call here on my calendar.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.