Factors that Can Affect Your Mortgage Application
Most Americans consider buying a home as the most expensive and formidable investment. And the prospect of filing for a mortgage loan can be quite unnerving and it is not without a reason. There can be many factors that may go wrong and adversely affect your mortgage application. Lenders are looking for a lot of information that can determine your ability to repay the loan. Are you a good investment? Are you credit worthy? Do you have a stable source of income? Does your spouse has a good credit? What financial obligations you have?
It is worth knowing what factors will keep you in good stead with the lenders at the time of filling out your mortgage application. It will not only put you at ease but also increase your chances of getting the finance you badly need to buy your dream house. Here are a few key aspects that lenders usually weigh out while reviewing your mortgage application:
1. Your Credit History and Credit Score
Credit is considered a very big factor in getting a mortgage approval. A bad credit score will act as biggest roadblock in your mortgage application. It may leave you unqualified for traditional mortgage programs such that you are left with costly sub-prime options that come with very high interest rates. It is extremely important that you know your credit health well in advance so that you are able to spot and remedy any critical issues that have the potential to raise any concern with lender’s requirements.
What’s important to know?
• How clean is your payment history? This is without a doubt the most important part of credit amounting to 35% towards your credit score. Using this information, the lenders like to analyse if you can be trusted to repay the loan money. It is important that pay your credit card balance before you file your mortgage application. If ever your account has gone to collections, this may be big red flag to the lenders who will interpret it as your inability to pay back the loan.
• Another important aspect of your credit score is how much you owe, accounting for about 30 % of your credit score. Lenders look the information such as how much of your total available credit have you used and also how much do you owe on different types of accounts like mortgage, car loans, credit payments etc.
• Canceling your credit card, especially the one that proves your long-term credit history can be a bad move. If your credit report can shows only a recent credit card, say the one you got it just a year back or so, your mortgage application can be declined. Length of the credit history accounts for 15% of your credit score.
• You must refrain from applying for new credit during the three to six months before you plan to apply for mortgage. It might give an expression that you may be experiencing some cash-inflow crisis as more often than not this is when people apply for new credit cards.
• What if you have stellar credit to show but your spouse has poor credit? Yes, this can actually impact your likelihood of getting a mortgage. And especially if are planning to use both of your incomes to be eligible for securing the mortgage, the credit of the spouse plays a critical role while lenders evaluate your mortgage eligibility.
2. Employment Status
What does your employment status need to do with your mortgage approval? A lot it seems. A strong employment history tells the lender a lot about your ability to hold a secure, long-term job that will help you repay the loan in a timely fashion.
What’s important to know?
• Lenders want to check if you have been in the same job and in the same field for two years or longer.
• It is also important for lenders to know if your employment is full time or part time. And if it a part time, you must be able to furnish the information about the duration of your employment and let the lender know how many fixed hours are you guaranteed each week.
• It is very important have the right information handy in terms of stubs, bank statements, pay-slips and tax returns so that lenders can verify the work history.
3. Down Payment
Lenders consider you a good investment or rather a lesser of a risk, if you are able to pay a substantial down payment for your new home. It also proves that you are financially responsible and that you can save.
What’s important to know?
• Usually the lenders are expecting a down payment up to 20 percent or more of the home’s buying price. Although it is not important to put down 20 percent and if you don’t, you will be expected to pay for private mortgage insurance.
• You can get away with a small down payment if you have a spectacular credit history to show. On the other hand, a less than average credit would mean that the lender will expect a hefty sum in down payment to secure a mortgage loan.
Other financial obligations that matters
• Your other loans such as monthly car loans, student loan or another mortgage may impact your mortgage application. If nothing else, these obligations have the capacity to reduce the amount of mortgage you can otherwise qualify for.
• What also matters is if you are divorced or separated. Your financial obligations towards child or spousal support may come in the way of securing the financial aid through mortgage.
• If you have any other debt settlements, bankruptcies, foreclosures, standing financial case or judgments against you, these situations are bad news for lenders.
If you think you have concerns regarding any of the above factors, it is advisable that you don’t apply for a mortgage as your application may be denied. It is in your best interests to repair your credit score and eliminate other roadblocks before you apply next time.