Finding it hard to get a mortgage? Here’s some expert advice for you.
If you are considering buying a new home, one of the first things to do is to get approved for a mortgage. When you know your budget well, choosing a home becomes a much easier decision. For this reason, you should always get approved for a mortgage before hopping from home to home, deciding which one is best for you.
Most people who find out they are not eligible are puzzled as to why they can’t get a mortgage. Let’s talk about the possible reasons you might not be eligible, and what you can do about it.
- Unsatisfactory credit score
Your credit score plays a big part in deciding whether you get a mortgage or not. Not only that, but your score also affects the interest rate and insurance on your mortgage. While the credit score varies from lender to lender, a minimum credit score of 620 is required.
- Long job gaps
Your employment history also plays a significant role in determining your mortgage eligibility. Generally speaking, lenders are looking for a continuous employment record for at least two years preceding the application. Some situations which can cause problems in your application include large gaps in employment, changes in the field of work, etc. Make sure you have explanations for any deviations in your job record.
- Lack of savings
These days, there are very few mortgage products available that give you the option of low to zero down payments. With some money in the bank, many more products become available that are worth a look. These days, you might need to pay the full down payment plus closing costs for the mortgage.
Owning a large debt, depending heavily on credit for your day-to-day needs, and spending beyond your income can seriously affect your chances of getting a mortgage. Lenders also calculate your debt-to-income ratio, and anything above 5% reflects poorly on your application. All dues including car loans, student loans, lease payments, credit card bills, etc decide your borrowing strength.
- Obscure income sources
Lenders prefer buyers with a stable and traceable income source. Your income is often derived from your recent tax returns, and many people including the self-employed, hourly wage employees, etc. face problems getting a mortgage. If you have income from a dubious source, you should have proper documentation for it as well.
What to do next?
Having learnt why you might be denied a mortgage, let us now discuss how to improve your financial situation to enable you to get a mortgage in the future.
- Keep track of your credit score and try to keep it comfortably above 620.
- If you are in debt, try not to borrow any additional money.
- If borrowing is absolutely necessary, consult a mortgage professional for advice on how to avoid denial of your mortgage.
- Before applying for mortgage approval, save the right amount of money for down payment and other expenses.
- Arrange all your financial documents and paperwork related to debts securely.
Most importantly, keep a positive frame of mind. We all face financial anxiety in our lives, but with good financial habits, we can turn things around. Not being eligible for a mortgage today doesn’t mean the end of the road – work smart, save up some cash, pay your bills on time, and soon enough you will be getting your dream home with a mortgage.