Are you thinking about buying a new home at some point in the near future?
If so, you can pay for the home outright in cash if you have enough money stashed away in the bank. But you can also apply for a home loan to cover the cost of it. This is the option that most people choose when purchasing a new home.
Applying for home loans can be a stressful process, though. Between looking around for the right mortgage lender and submitting all your financial documents to them, it’s easy to get overwhelmed when you’re trying to obtain a home loan.
There are also certain problems that you might face when you apply for a home loan that could cause you to get denied for a loan in the end. You should make every effort to avoid these problems.
Take a look at a few of them below.
Your Credit Score Is Too Low
If you’re even remotely interested in purchasing a new home right now, it’s a good idea for you to look up your credit score before you start shopping around. Your credit score is going to play a key role in determining whether or not mortgage lenders will give you home loans.
Every mortgage lender treats credit scores a little bit differently. But generally speaking, you’re going to need to have a credit score over 760 to get approved for a conventional home loan in most cases.
If you check your credit score prior to applying for a home loan and find that it’s under that number, you should try to bring it up before sending in your loan application. You can do it by:
- Paying down as much of your credit card debt as you can
- Making debt payments on time from now on
- Disputing any errors that might exist on your credit report
Bringing up your credit score is likely going to take time. It’s not going to happen overnight.
But if you’re patient and work hard at increasing your credit score, you can improve your chances of landing a home loan. A mortgage lender will look a lot more favorably upon you when you come to them with a high credit score.
You’re Carrying Around Too Much Debt
The first thing that most mortgage lenders will check when you apply for a home loan through them is your credit score. That will determine if they’re going to seriously consider your loan application or deny you right away.
But you’re not going to be out of the woods if your credit score checks out. The amount of debt that you’re carrying around at the moment will also factor into a mortgage lender’s decision.
At the end of the day, a lender is going to want to feel confident in your ability to pay off your mortgage over time. And if you’re already saddled with a lot of debt, it might be tough for you to make mortgage payments on time over the years.
A mortgage lender will use your credit report and your financial records to see how much debt you have on your hands when you apply for a home loan. They’ll look at everything from credit card debt to car loans to paint a clearer picture of your financial situation.
If they ultimately decide that you have too much debt, they aren’t going to approve your loan application. So it’s important for you to pay down as much debt as you can prior to applying for a loan to avoid your debt becoming an issue.
You can have some debt to your name when applying for a home loan. But the less debt you have, the better your chances will be of being approved by a mortgage lender.
You Don’t Have Enough Money for a Down Payment
Once upon a time, there were some mortgage lenders that allowed home buyers to purchase a property without putting down a down payment. But those days are long gone for the most part.
Today, most mortgage lenders want to see home buyers put down a 20 percent down payment on a home before giving them a loan. But at the very least, many mortgage lenders require people to put down 5 percent on a home prior to approving their loan application.
If you don’t have enough cash on hand right now to put down a down payment, you should attempt to save up some money before applying for a home loan. It’ll put you in a much stronger position and show a mortgage lender that you’re serious about taking out a loan from them.
Your Employment History Is Spotty
How long have you been working at your current job?
If you’ve only been in your current position for a month or two, this could potentially be a huge red flag for mortgage lenders. Many lenders want to see that a person has paystubs from a stable job that they’ve been at for at least a year or two before approving them for a home loan.
Additionally, mortgage lenders will also look at your employment history from the last few years to see where else you’ve worked. If you’re the type of person who is always jumping from one job to the next, that could also work against you.
Mortgage lenders want to make sure that the people they lend money to have steady jobs so that they can repay their loans. It’s why they’re so adamant about looking into their employment history and checking in with their current employers.
So make sure you have at least a year at your current job under your belt before applying for a home loan. It’ll show a mortgage lender that your professional life is in order and that you’re capable of making mortgage payments month in and month out.
You’ve Declared Bankruptcy in the Past
A bankruptcy is just about the worst thing that you can have on your credit report. It sticks around for 7 to 10 years in most cases and lets lenders know that you’re probably not a great candidate for a loan.
If you’ve filed for bankruptcy in the past, you should know that your chances of being approved for a mortgage loan are likely low. But you shouldn’t give up on the idea of applying for a home loan altogether.
You might want to think about working with a mortgage broker, though, rather than going through the application process alone. They can inform you about unconventional mortgage loans that you can apply for in spite of your bankruptcy record.
You’ve Faced a Foreclosure Before
Foreclosure rates are very low at the moment. In fact, they haven’t been as low as they are now in more than a decade.
But that doesn’t mean that there aren’t thousands of people out there who are still dealing with the consequences of going through a foreclosure. Many of these people have had their credit scores tank and their financial well-being destroyed by a foreclosure.
If you fall into this category, you should know that it’s probably going to be tough for you to get approved for another mortgage. Mortgage lenders are going to see you as a huge risk based on the fact that you’ve gone through a foreclosure before.
But just like with those who have a bankruptcy on their credit report, you shouldn’t allow a foreclosure to slam the door on your home ownership dreams. There are ways you can qualify for a home loan, provided you’ve made an effort to repair your credit report.
There are bad credit home loans out there that you can apply for. You can also work directly with a mortgage broker to scan through some of your other available options.
You’re Asking for a Loan That’s Too Large
You might want to buy a $400,000 home and think you’re in the perfect position to do it based on your current income and your credit history. But mortgage lenders might think otherwise.
If you ask for a loan that’s too large, many mortgage lenders will stamp “DENIED!” on your mortgage application immediately before sending it back to you. So you need to be realistic about what you can actually afford to buy.
You should even consider getting pre-approved for a mortgage prior to shopping around for homes. This will let you know approximately how much you can afford to pay for a home and prevent you from looking at homes that might be out of your price range.
Getting Home Loans Doesn’t Have to Be Hard
As you can see, there are all kinds of problems you could face when looking for home loans. But there are easy ways to avoid them.
Before you begin the home-buying process, you should bring your credit score up as high as you can get it. You should also pay down debt and make sure you have a stable job. And you should even call on a mortgage broker for help if you feel you need it.
Are you ready to get started? Use this sample employee verification letter as part of the process.