Banks do not take kindly to situations that involve scenarios that do not make sense. It has to pass a litmus test. A reasonable man would have to look at the file to say that it is plausible. In times even when the story is true, it still may not make sense to the lender. The following are examples of things that may stop your mortgage chances.
Disputed accounts: If you have a disagreement with a particular creditor, handle it without putting the account in dispute. If you allow your creditor to put your account in dispute, it is effectively erased from your credit report temporarily until the dispute is resolved. The reason this can become problematic for a mortgage, is it takes a long time to go through Automated Underwriting. Fannie Mae and Freddie Mac require that any account in dispute be taken out so Automated Underwriting can be run. This provides a more accurate read on the borrower’s credit picture. Automated Underwriting will recognize any account that is in dispute. Subsequently giving the mortgage lender an inaccurate read on your credit worthiness.
Accounts not reporting on your credit report:
If you had any event in the past, for example a bankruptcy in the last seven years, this could be a deal killer. Here’s why. Derogatory credit events need to be reported on your credit report. If they’re not reported the mortgage company’s Automated Underwriting does not get an accurate read on your credit history. Subsequently, it cannot make an accurate decision to grant you home financing. In this scenario, it is best to contact the credit bureaus directly and ask them to specifically report the event.
Credit events not matching up:
Let’s say, for example, you had a financial predicament happen and for whatever reason, you are unable to make payments on an obligation for a period of time. If that period of time is inconsistent with other supporting documentation, such as a credit report, or dates on the documents, or deeds, you might have a difficult time securing financing. Make sure when you are providing a Letter of Explanation to a lender, you are telling them about what transpired in the past. Be as accurate as possible, especially when time comes, about the details and making sure everything accurately adds up and makes sense. If anything is off or doesn’t make sense to you, it probably does not make sense to the lender either.
Down payment money deposited to your account:
This one is a biggie. Most people have their monthly budget and bills come from their primary checking account. This can be problematic. If the down payment is in the same account, on paper, it can look like you are spending the funds for your down payment. Keep your money for your home purchase outside of your normal spending account.
Shared bank accounts:
This can become problematic, especially if you have an account where you co-signed with another party. Let’s say you co-signed for your daughter’s car. If the account the car payment is made from contains your daughter and yourself, it will look like you pay the obligation. This can hurt your Debt to Income ratio and limit your ability to borrow.
Some programs can heavily focus on reserves. For example, an FHA loan with a really low credit score, say under 600, in many cases will require reserve funds. Gift money for reserves will not be accepted by FHA and most Jumbo mortgages. On the other end of the spectrum, Jumbo mortgages typically require as much as six to twelve months of mortgage payments in the bank after you purchase your home. This amount cannot be gifted, unlike down payment money, where the guidelines are more flexible.
If you are looking to get a mortgage, contact an experienced lender who really knows loans forwards and backwards. You want a person who is a student of their craft and is up-to-date on the latest lending trends and guidelines.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.