If you’ve ever been denied for a mortgage or are starting the process of buying a home, you may be wondering how to avoid rejection.
Here are some tips on how to avoid a mortgage denial.
Recent Large Purchases
Mortgage lenders will be evaluating your finances when you apply for a loan. If you make large purchases during that time, it can cause a problem. They are trying to determine if you can make the monthly payments, so it’s best to avoid buying a car or new TV until after you get your loan.
New Credit Card
Getting a new credit card will change your debt-to-income ratio, which is an important factor lenders look at when trying to be approved for a mortgage. In a nutshell, debt-to-income ratio are your total bills measured against your total income.
The general rule of thumb is don’t take out any new debts, including loans of any type and credit cards, for at least six months prior to your application.
Your Job Status Changed
Whether you’re celebrating a new job or were just let go, your mortgage could be denied. Most lenders like to see at least two years of steady income with your employer, so any changes, even if positive, could cause a problem.
If you’re planning on making a job change, keep this in mind because most lenders will verify employment during this process.
Missing Debt Payments
Even if you have many years of great payment history, it won’t help you if you are having trouble now. Not only will late payments lower your credit score, they’ll also reflect poorly on you as a potential borrower.
If you can’t make your payments on time before you have a mortgage, the chances of a bank wanting to lend you more are slim.
Bad Credit Score
Your credit score is a key component in your ability to get a home. The good news is that you can begin working on it before you apply, by making timely payments and paying off debts as you’re able.
Typically, the lowest score you can get by with is 620 or more. So, take a hard look at your numbers and make a plan to improve if you think your credit may be an issue.
Your Down Payment is Small
Any lender wants assurance that you can pay the mortgage and a strong indicator of your ability is what you bring to the table. If a lender decides that your down payment isn’t enough, it could mean they won’t accept the loan application.