Casey Bond, the managing editor and leading personal finance expert for Go Banking Rates, understands that the home loan approval process is long and complex, making it that much more difficult for borrowers to understand how they can increase their chances of obtaining financing. In order to help more Americans realize the dream of homeownership, Ms. Bond identifies 10 lesser-known circumstances that can cause a mortgage applicant to be denied a loan.
10 Surprising Things Preventing Consumers from Qualifying for Home Loans
1. Too many jobs. Lenders want to see proof that the applicant has been consistently employed for at least the past two years. If a borrower has jumped between employers and/or fields recently, it may signal a red flag to lenders that his or her employment history is unstable.
2. Owed child support or alimony. Loan processors will contact courts and lawyers to confirm marital status and find out if money is owed by the applicant for child support, alimony, or a court-awarded judgment, which is treated like any other debt and required to be reported it on mortgage applications.
3. Approval for a new credit card. Any changes to credit availability that occur during the time between submitting a mortgage application and obtaining approval can throw a wrench in the process. A lender will be notified if the borrower is granted new credit after submitting the mortgage application, which can slow the review process or even result in rejection.
4. Closing an old credit card. The same rules for opening accounts apply to closing them as well. One of the major factors affecting loan approval is the applicant's credit utilization ratio. Closing a credit account reduces the total amount of credit available to a consumer, while the debt load remains the same — increasing the likelihood a mortgage application will be denied.
5. Borrowing money for the down payment. Mortgage processors will do their best to vet the sources of down payment funds, and if they find out that any of the money is borrowed, even from a close friend or relative, there’s a good chance the loan will be denied.
6. Condo tenants are behind on HOA dues. The FHA requires that no more than 15 percent of tenants within a condominium complex be over 60 days late on Homeowner’s Association dues (recently extended from 30 days).
7. The loan is too small. Many borrowers experience a hard time obtaining small mortgage loans of $50,000 or less because it costs a lender just as much money to fund a small loan as a large one, often making a loan a bad deal for the lender.
8. Paying off an old collection account. Sometimes a debt can be so old that it doesn’t show up on an applicant's credit report any longer. However, paying off a collections account that has fallen off a credit report will “reactivate”
9. Seeing a different credit score than the lender. Consumers have 49 FICO credit scores and they all differ from one another. It’s very likely that when applicants check their credit, the scores they receive are not the same as the ones potential lenders do.
10. Loan will be sold on the secondary market. This makes it harder for consumers to get a loan, as the qualification standards will vary and be that much stricter since there is increased risk riding on the borrower's ability to repay the mortgage.
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About Casey Bond
Casey Bond has been a professional within the finance industry for close to a decade. Her work regularly appears on a number of major national publications in addition to Go Banking Rates, including Business Insider, US News & World Report, and Yahoo! Finance. Her work can also be found on The Motley Fool, LearnVest, Money Talks News, Seeking Alpha, and About.com.
About Go Banking Rates
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