The Reasons You May Not Be Qualifying For A Home Loan
Apartment renting is great when you are a twenty-something college student and all of the best trendy restaurants are within walking distance of your home. It doesn’t take long, however, until those things slowly fade away and the desire to own a home becomes more than a thought. This is usually the point where you realize you need to evaluate your finances if you are going to apply for a home loan. Fast forward to the point where you have made the decision to buy a home and you are getting an approval. The bank comes back to you saying that you did not get approved for the loan. It can be devastating but if you know the reasons why you can’t qualify for a loan, the easier it will be to work on fixing them so that your dream of owning a home can become a reality.
Reason #1 – Your credit score is different than what you think
If you monitor your credit score through a credit monitoring service, good for you! Remember however these are not always accurate because they usually are only looking at one or two bureaus. When a mortgage lender pulls your credit they look at all three bureaus and will usually look at the middle score as a measure of risk.
Reason#2- Your gap in employment is greater than six months
When you apply for a home loan the lender will want to see two years of employment history. The lenders require this because they want to originate loans that will perform over a long time. When you have a gap of employment longer than six months, this usually is a red-flag to a lender. If you hop around from job to job it can be even more difficult as this shows instability which can mean more of a risk for the lender. It is best to explain in full detail any reasons that you may have had a longer gap of employment so that the loan officer can understand the situation more and hopefully fight for an approval.
Reason #3- Your income is not straightforward
If you are an hourly employee and you count on overtime and/or bonuses you have to show two years worth of bonuses/overtime in order for the income to count towards your monthly income. If you work two jobs, you will need to have two years worth of pay stubs from both jobs in order to include that towards your income. Having multiple sources of income is great, just make sure that you have been working them consistently so that it can be included.
Reason #4- You don’t have enough cash to close
In order to buy a home these days you need at least 3.5% plus closing costs which typically run around 3% of the purchase price of the home. If you don’t have the money and have to have if ‘gifted’ to you that can be a risk for the lender. If you are gifted with the money, it is best if it is put into an account other than your checking account as you do not want it to seem as though you are spending it. If you have other deposits that are made into your accounts but cannot be accounted for, the lender will not include these. Make sure that you are showing a paper trail where all of your money is coming from.
Reason #5- You are living above your means
If you are living your life on credit and spending beyond your means this can substantially hurt your chances to get a home loan approval. Car loans, student loans, lease payments, and credit card payments are things that will count against your borrowing strength so it is important to keep these payments low. The more loans you have against your income the more it will affect how much mortgage you can afford. If you can pay off some of your debt this will reduce your debt-to-income ratio therefore increasing your odds of a home loan approval.
Owning a home is a rewarding feeling but sometimes the steps you have to take to get there can be challenging. If you know the road blocks you might face and the obstacles you might have to overcome, you will be more prepared for the home loan approval process.
