What every home buyer should know: Pitfalls that could cause your mortgage application to be denied

What every home buyer should know:  Pitfalls that could cause your mortgage application to be denied.

Mortgage lenders are increasingly restrictive on their guidelines, due in part to legislation guidelines that limit the lenders ability to make loans.  Here are a few reasons that applications get rejected:

1.     Income - not enough income to support the mortgage amount you are applying for. Sometimes this is due to a spouse with credit problems (when you can’t use their income to qualify for a loan), but this can also be caused by a job change or temporary/overtime pay.  Commission sales and Bonuses are also a risk factor here. 

2.     Credit – the required FICO scores can change with the market, however as of October 2011 the cutoff will likely be 620-660 depending on the lender and the loan product you are applying for.

3.     Late Payments – Even if your credit score is high enough to qualify, if you have late payments in the recent past this can cause a mortgage application to be denied.  

4.     Debt to Income Ratio – The amount of your monthly payments for mortgage, car, credit cards, student loans, etc. should not be more than 45% of your total income.  If it is, you will need to pay down or pay off some of your other debts before getting a mortgage.

It is so important for home buyers to get not only a “pre-qualification” for a loan, but to actually complete the loan application prior to making an offer on a home.  If any of these issues arise in your home-buying (or refinancing) process, you should discuss this with your mortgage professional immediately and keep your Realtor^® informed on the situation so that they can assist you through the process.