By Roslyn Lash
June is National Homeownership Month! If you are applying for a mortgage loan you need to know what to do, what lenders expect, and what you should expect during the loan application process.
Lenders want to know that you have the three C’s:
- Capability: You have the income to support the mortgage payment
- Credit: You’ve proven that you have the willingness to pay as agreed
- Collateral: You are willing to contribute to the purchase by paying downpayment or closing cost
If you have the above factors, you’ve meet the threshold for approval. The remaining 10 reasons may result in loan denial:
- Income: If your income is unstable, unverifiable, insufficient, or if your income varies or is expected to decline. You must have enough income that can be verified. Lenders will not loan money if they can’t document your ability to repay the loan.
- Poor Credit: You don’t have to have pristine credit but be sure that you don’t have any late payments within the past 12 months.
- Changes in the loan application: If your information has changed since the initial application, it could negatively impact the loan decision. Any financial change could affect the decision. If you have a change in employment or even new debt you could be disqualified. Therefore, do not make any purchases during the loan process. That new furniture can wait!
- Big difference in payment: If the new mortgage amount is expected to far exceed the amount that you’re paying for rent, it creates payment shock. Your wallet will be shocked with the new payment which could eventually lead to financial problems.
- No savings: Lenders want to see that you have a history of saving, and that you have enough money to close.
- No Downpayment and/or closing cost: You must contribute to the purchase of your property. Statistics show that buyers that have some money in the transaction tend not to walk away from the property.
- Property doesn’t appraise: The property must appraise for the amount that you are paying for it. Otherwise, why would a lender loan more money than the property is worth?
- Too many repairs: Always, always, always get a professional home inspection. The inspection will reveal any deficiencies. You will have the choice to re-negotiate the price, ask the Seller to make the repairs (you’ll need another inspection to verify repairs), or if the repairs are minimal, you can buy the house “as is”.
- Income incorrectly calculated: Through no fault of yours, occasionally incomes are miscalculated.
- Too much risk: If you fall into one of the above categories there could be mitigating circumstances. However, if you fall into several categories it causes reasons for concern. Independently a risk may be acceptable but collectively it’s too much.