With the housing market rebounding and low interest rates continuing to hang around, you may be now looking to get into a home. Even if you have the downpayment for a new house, that might not be enough to move into your dream house. Despite the uptick in the housing market, banks are using much more stringent standards when making a mortgage loan.
And while you expect things like having late payments, charge-offs, collection accounts or judgments against you showing up on your credit report card to lower your score and work against you during the mortgage application process, these issues can also lock you out a new home. Here are ten reasons you may lose out on your dream home.
1. Your credit has been checked too often
Applying for credit cards or loans can shave precious points off your credit score. And if you’re close to the threshold between a “good” or “fair” credit score, even a few points can be the difference between qualifying or not.
To be safe, hold off applying for anything for six months before applying for mortgage.
2. Applying or obtaining new credit while in escrow
Fannie Mae now requires lenders to run a new credit report just prior to loan funding. So if you open a new credit card or finance furniture for your new digs before closing, expect to provide a good explanation and possibly have the deal fall through.
3. Not having credit
Pre-bubble days no credit was considered good credit, but in today’s market a lender needs to see that a homebuyer has a history of managing credit obligations. If you are new to the credit market and do not have a long enough credit/payment history, you may not be able to get a mortgage.
4. Private Mortgage Insurance
Qualifying for a mortgage isn’t the only approval you need. If your down payment isn’t 20 percent of the purchase price, you’re going to need private mortgage insurance (PMI). PMI is generally required by lenders as a means of protection in the vent you default on the loan. But just because you qualify for a mortgage, doesn’t mean you’ll qualify for PMI; these companies run their own credit check and assess credit worthiness independent of the mortgage lender.
5. Lack of reserves
Mortgage lenders like to ensure s borrower has proper reserves (savings account, IRA, 401(k), stocks, etc.) in case of a physical issue with the house or loss of the borrower’s job. And inadequate reserves kill many loans.
6. Appraisal issues
The price negotiations aren’t necessarily over just because the buyer and seller agree on a price. In an unstable market, an agreed upon price may be more than the appraised value of the home. It that’s the case a buyer has to cough up more cash for the downpayment to maintain the proper loan to value ratio.
7. Your available credit to debt ratio is too high
The preferred credit to debt ratio is different from many lenders but on average hovers around approximately 36%. If your credit to debt ratio is higher than this amount, it is wise to pay your cards down to this level or expect to be denied a mortgage.
8. You have been the victim of identity theft
Applying for a mortgage could tip you off that your information has been used to open fraudulent credit accounts that were probably not paid. If you are a victim of identity theft, notify the police, the credit bureaus and creditors immediately and advise them of what has happened in order to begin the process of cleaning these fraudulent items off of your credit report cards.
9. You may not have been at your job long enough
Potential lenders want to know you’ve got a stable income and the ability to pay your mortgage payment along with your other obligations. So if you just started a new job, you might have to wait three to six months (maybe longer depending on credit history, etc.) before putting in a purchase offer.
10. You only have one type of credit history
If you only have a department store credit card or one consumer credit card lenders aren’t certain you can aptly handle a budget. That’s because they like to see diversity (car loan, a store card and a credit card) to assess your full potential as a debtor lender.