Buying a home is the American dream. And, if you’re like most, you’ll probably have to obtain a home loan to make that dream come true. However, many factors can affect your mortgage approval. Here is a list of some reasons your loan may not be approved.
Your credit history is perhaps the largest obstacle to overcome when it comes to a mortgage approval. It carries the most weight in determining your credit future. Financial institutions that do mortgage loans are specifically looking at the following as potential warning signs:
- Late payments
- Missed payments
- Previous foreclosures or bankruptcies
- Large amounts of outstanding debts
Your best bet is to pay off your outstanding debts and establish a solid, recent history of on-time payments. While you can’t remove the negatives on your credit history, you can make an effort to improve it. Lenders like to see you’re taking steps towards good credit.
Debt to Income Ratio
No matter how good your credit is, lenders also want to feel confident that you can reasonably pay any new debts you take on. That’s why they explore your debt vs. your income. They use this to determine if you can afford to take on additional loans.
Lenders determine this by adding up all your monthly debts and dividing those by your monthly income. If this ratio does not meet their criteria for approval, your loan could be denied. While each lender will have their own cutoff points, ideally, you want this ratio to be below 40 percent – the lower, the better.
Most mortgages require at least some money as a down payment. While there are a few programs that offer zero-down mortgages, it is recommended that you put at least some money down on your home. The more you can put down, the better. It increases your chances for a mortgage approval and, in most cases, means you don’t have to pay PMI (private mortgage insurance.)
Twenty percent of the home price is usually the standard down payment amount. If you’re having trouble coming up with a 20 percent down payment for your mortgage, consider specialized loan programs offering down payment assistance. Other programs allow you to purchase with less of a down payment, but requires you to pay private mortgage insurance.
Now that you’ve found the home of your dreams, it’s time to have an appraisal. If the home estimate comes back lower than the asking price for the home, you could have problems. There are some options available to you if this occurs. You could come up with the difference between the appraised value and the loan value or ask the seller to reduce the price to reflect the home’s appraised value.
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Buying a home is exciting but can also be confusing. Our mortgage experts are here to guide you through the entire process and help you make the best financial decisions for you and your family.
To learn more about home loans or to receive answers to your mortgage questions, visit our mortgage center, or call, chat, or text us! (315) 671-4000.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.