|Some reasons why people canít qualify for mortgages
Ever been enticed by a low mortgage rate only to find out you don’t measure up to the credit standards of that particular lender?
Unfortunately, it happens every day. The good news is only 40 percent of people cannot qualify, which means 60 percent of the people can. Nevertheless, following are common ways your loan could be derailed.
• Credit scores too low: What credit score do you need these days? A score of 620 or better, period, end of story.
• Maxed credit cards: Where are your balances in relation to the limits? Best to keep consumer debts at no more than 30 percent of total allowable lines.
• Credit inquiries: Do they drop your score? Not always, but keep mortgage only credit pulls within a 30-day period to be on the safe side.
• Debt paid off in full: Does the credit report support this? If not, lenders will use debts reported even if balances are zero. Credit report carries the weight but can be supported with third-party validations.
• Co-signing: Did you lend your credit score to someone? Twelve months of cancelled checks or bank statements showing they make the payment to the creditor would be required to offset the debt.
• Debt not offset: How about another housing liability payment or financed consumer item like an auto loan? You’ll need double the income to offset each dollar of debt unless it can be paid off.
• Not showing income: Not showing enough income under your self-employed Schedule C? Doing so reduces your borrowing power, so it’s best to reduce consumer debts in situations like this.
• Unreimbursed business expenses/losses: Taking these on your tax return? These could reduce your borrowing power.
• Occupational change: Has your occupational status changed in the last 24 months? If yes, best to go from self-employed to W2, not the other way around.
• Unsourced funds like cash deposits: Plan on using cash for your transaction? Not so fast, all funds must come from some kind of a bank account and show a clear chain from A to Z where money began and ended.
• Using the down payment: Plan on reimbursing yourself later by spending your down payment funds? Don’t do it. Keep your down payment secure throughout the loan process.
• Transferring funds: Moving money from separate accounts during the loan process? Be ready to show full bank statements of every account the money was in.
A reputable mortgage professional should be able to look at your credit, debt, income and assets and make a determination upfront of whether or not you qualify for a mortgage loan. However, you should be willing to send to your mortgage lender financial documentation, including two years of tax returns and W2s, bank statements and pay stubs to support your loan qualification.
In this credit market, no loan is a guarantee. What we can say, upfront after looking at your financials, is how likely you are to be able to be successful in getting that mortgage loan closed.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.