5 Reasons Home Mortgages are Denied

You’ve weighed the pros and cons between buying and renting a home in Shenandoah, began checking out the housing market, and taken a look at the importance of your credit score. Take a look at these 5 reasons home mortgages are denied and make sure none of them apply to your situation.

Reason One: Bad Credit or No Credit

Bad credit seems pretty obvious, but it’s often the overlooked debt from years ago that trips people up when it comes to mortgage loans. When you were younger, you may have ignored a debt that comes back to haunt you when you apply for a loan to buy your home. Items remain on your credit report for 7 years. This is why it’s important to be thorough when checking your credit reports. Clear up any bad debts from the past.

Having no credit is just as frowned upon as having poor credit. If you haven’t made smaller commitments with credit cards, car loans or other accounts, there is no way of proving that you’d be a good risk for a lender to consider. Having a credit history gives them some idea about how you handle your money and if you pay your bills on time.

Reason Two: Debt-to-Income Ratio

Lenders are going to look at how much debt you currently have and compare it to your income. If you have 4 maxed out credit cards, a car loan and several store accounts, a lender may consider you a bad risk for a home loan.

Take a look at your tax returns, too. If you have business expenses that come out of your own pocket, a lender is going to deduct those from your useable income. This lessens the amount of money that you think you have to spend on that mortgage.

Keep an eye on your checking account and credit card cash advances. Consistent cash advances on your credit cards show that you are short on cash. Your checking account will tell a less than positive story if it’s full of insufficient fund charges. Similarly, you don’t want to show a record of constantly removing money from your savings account.

Reason Three: Down Payment Too Small

Lenders are going to expect you to have a nice little chunk of money to put down on your dream home.  Some mortgage lenders will accept 10% down, but there are others who will require 20% down. It’s very rare for someone to offer a mortgage loan with no money down. There are no and low down payment options out there, so be sure to check those out, but be of the mindset that you will most likely need money down to buy your home.

If you find you’re short on down payment, you can tighten your belt and postpone your purchase until you have more to offer as a down payment. Alternately, you can search for another type of mortgage loan that will accept a smaller down payment. Either way, you should know that borrowing the down payment from friends and family is frowned upon.

Reason Four: Employment History

If you’ve had an on again-off again relationship with jobs, you might find it difficult to get a lender to take you seriously. They want to see that you are stable and have the ability to make a long term commitment. If you’re going from job to job, you are setting off their red alarm that you might not be able to make your mortgage payments.

Self-employed people are going to need to have their paperwork in good order and be able to show proof of income and dependability. Getting your accounts and paperwork ready to show this proof will save you headaches and disappointments later.

Reason Five: Not Telling the Whole Truth

Being dishonest on your mortgage loan application or when answering questions is a fast way to get a rejection. It’s best to go into the process of obtaining a mortgage loan with an attitude of full disclosure. Lenders have access to your accounts, public records, and other systems. They will find out if you’ve told them a lie, and that just looks bad all the way around.

For more information on the ins and outs of buying a home in Shenandoah or another community of Baton Rouge, call Ashley Kimble Slaughter at 225-235-9379.

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