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 that 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.
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.
Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, California. Scott has been seen in Yahoo! Homes, CNN Money, Marketwatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
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