Best Practices Before Applying for a Mortgage

Mortgage rates are at an all-time low right now but having a mortgage loan approved is another matter. There are a few things you can do before applying for a mortgage, so you can reduce your chances of being rejected.

Here’s a quick-hit list of the key reasons why borrowers are refused home loans. Knowing these things ahead of time can help you prepare accordingly.

Low Credit Score

Late payments and missed payments will lower your credit score substantially. In addition, applying for more loans and hitting the limit on your credit cards would also adversely affect your credit score.

Apart from looking at your credit score, lenders can also check if you have numerous late payments in your credit report. To boost your credit score, you can use SavvyMoney to see how different loans impact your credit score and how to increase your credit score.

Down Payment Amount

Underwriters will look at the amount of down payment you choose to make when you purchase your future home. Generally speaking, a higher down payment would be more suitable.

In order to ensure that you are not refused a mortgage due to insufficient savings, you should start saving early. RMLEFCU offers high yield savings accounts to help you earn more.

Debt-to-Income Ratio

When borrowers are shopping around for a mortgage, they might come across the term: debt-to-income ratio. If the buyer has a lot of debt, this might mean the buyer could struggle to repay the mortgage.

Underwriters can analyze how much debt you have and how much of your revenue remains until you repay your debts. Your debt level is just as relevant as your credit score.

Employment History

Underwriters look at previous employment to gauge the possibility of inconsistent income in the future. Inconsistent employment history would enable underwriters to raise more questions.

More questions mean more time, more paperwork, and more of a possibly that the underwriter will find something they don’t like.

Sources of Income

Unstable source(s) of income is not a standard excuse to refuse a mortgage application, although it is possible. Borrowers who are self-employed are also perceived to be at greater risk due to potential unreliability, however, that isn’t exactly true.

Unreliability can occur more so when someone adjusts the pay structure frequently and recently like changing from a W2 to 1099 and back to W2, cash income, royalty income, etc.

Most applications for a loan are not rejected. For those that are refused, there are still opportunities to work to transform the refusal into an acceptance. Some efforts do take more time (like improving credit, saving money, and improving the length of employment) but working with the correct loan officer will help you define what you need to do. Contact RMLEFCU for a pre-approval today!