MORTGAGE LOAN DENIED!! WHAT??? I HAVE EXCELLENT CREDIT! WHAT'S GOING ON??
Inspired by a post by George Souto, see "I WANT IT NOW".
IT'S A LINE OF CREDIT. It represents CASH. That doesn't mean you have to spend it all today.
A credit card is a convenient way to purchase consumer goods and services, business services, online products and services and just about anything as long as the vendor offers the convenience. The line of credit represented by that card was not intended to be an enabler for consumers to incur debt.
DON'T BE INDUCED BY THE EASY CREDIT. The banks that issue these lines of credit fully intend that consumers use these accounts as they do. That means charging against your line of credit for items and services THAT YOU OTHERWISE COULDN'T BUY!!!
FACT: Folks who charge against their line of credit and pay it off at the end of the month will not get into credit distress.
FACT: Folks who pay a minimum payment have probably spent more than they should.
FACT: If you can't "afford" to pay off the balance on your credit card statement each month, you have spent MORE THAN YOU CAN AFFORD!
FACT: THE INTEREST CHARGED BY THE BANKS ON LINES OF CREDIT (CREDIT CARDS) IS THE HIGHEST RATE THAT CONSUMERS PAY FOR ANY CREDIT, MORTGAGE, AUTO, ETC.
Oh sure, cash is not always convenient and checks are not always accepted. So, CHARGE IT! has become the American way of buying products and services.
WHEN YOU WHEN TO BUY A HOME. . . . . . Qualifying folks for a mortgage loan is often sad. The front ratio may be only 25%, but when that back ratio gets up to $45% or more, in today's market, a mortgage loan is doubtful and, even if approved, will be more costly. Those $500 auto payments (perhaps 2 auto loans), $300 student loan payments, $100 Home Depot payments, $200 department store payments, etc., may add up to "LOAN DENIED"!
By the way, an auto loan is the easiest loan to obtain and doesn't indicate credit worthiness for a mortgage loan. If you default on an auto loan, they can reposses the vehicle (collateral), sell it and collect the deficiency from YOU.
If you default on a mortgage loan, the bank has to go through a legal, time consuming and expensive foreclosure process to gain possession of the real estate (collateral).
If your credit balances are more than 1/3 of your credit line, your CREDIT SCORES will be reduced. Most First Time Home Buyer programs require a credit score of 620, 640, etc. Conventional loans require much higher credit scores.
THE BOTTOM LINE IS, credit is insidious. A $100 here and $200 there doesn't sound like much, but when the statement comes in . . . IF YOU CAN'T PAY IT IN FULL,
YOU HAVE SPENT TOO MUCH!
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
"We're sorry but your mortgage loan was denied. You have far too much credit outstanding"
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