10 Reasons People Can’t Get a Mortgage

Posted on April 25, 2011 by admin
The good news is the current status of real estate is a buyers market and interest rates are low. There are so many people who need to sell their homes and so few buyers that you’re bound to find some good deals if you’re in the market for a home. The bad news is that with so many people defaulting on their mortgages, the lenders are much more cautious when approving new loans. These are a few things to watch out for.
  1. Bad Credit – Of course the first thing your lender is going to check is your credit history. It would be prudent of you to check this yourself first to make sure you’re in good standing. There are several services available to not only check your credit score, but also let you know what steps you can take to improve it. Just because you always pay your bills on time doesn’t necessarily mean you have a good score. Make sure there isn’t something there you’re not aware of. You don’t want any surprises when you’re in the loan office.
  2. No down payment – The era of no money down is over. Lenders will be looking for at least 10-20% of the home value for a down payment. You want to have enough saved to cover this and a bank statement to verify it.
  3. Income too low – Your income will determine how much a bank will be willing to lend you for a home. Not only do you have to be able to make the monthly payments, but also be able to cover the extra costs of owning a home like property taxes, regular maintenance and supplies for upkeep.
  4. Employment record – Lenders will be looking very carefully at your employment history. If you change jobs frequently, they will be less likely to grant you a loan unless your income increases significantly with each change. If you are self-employed or have a fluctuating income, this can also be a factor.
  5. Too much debt – You may have a good job with a nice monthly income, but may not get the loan if your credit is already overextended. Most lenders will want your debt-to-income ration to be less than 36 percent. If your car loans, credit card payments and student loans are more than that, your mortgage may not be approved.
  6. Market value of home – The home you want to buy will need to be appraised for its current market value. With home values dropping, many people walked away from mortgages that were more than what they could sell their home for. Banks will not write a mortgage if the price of the home is more than it’s actual worth.
  7. Bad neighborhood – Another thing the lenders will be looking at is the location of the home. It may be a really nice house in good repair, but if the neighborhood is declining, that will have an adverse affect on the market value of the home.
  8. First time – Unfortunately, the hardest mortgage to get is the first one. Homeowners with a good history of making their previous mortgage payments are much more attractive to lenders. A first time home buyer is considered a greater risk.
  9. Big vs. small bank – Depending on your circumstances, dealing with a large mortgage lender may be a disadvantage. You may be better off working with a small local bank who knows who you are and that you have some personal integrity. A large impersonal bank doesn’t care who you are and will only look at the numbers instead of other factors that may be more favorable.
  10. Last minute changes – Everything can be going well and your mortgage has been approved, but this can all fall apart before you close the deal. Losing your job, running up your credit card debt, or getting another loan can cause the lender to back out before closing. Make sure there aren’t any major changes in your financial status until after the paperwork is signed.
Home ownership is not for everyone, but many people would rather make a mortgage payment on a home they own instead of paying rent. Make sure you’re not sabotaging yourself before you start.