August 3rd, 2016 5:07 AM by Jackie A. Graves
Most people will tell you that
acquiring a mortgage can be
a lengthy, complicated process. Throw into the mix a few credit blemishes or a heavy debt burden, and the path to
homeownership can suddenly become an uphill battle.
Before you pick out your dream
home and start mentally placing your furniture, it’s important to know if your
financial situation will make potential lenders deem you a high-risk borrower.
Lenders use a variety of methods to ensure customers won’t bail on their loans.
For example, Tammi Robson, a mortgage broker at Metro
Lenders Inc., determines loan eligibility for Denver,
CO, house hunters by
using a three-pronged approach. “Approval of a real estate transaction depends
on the approval of three things: the borrower’s credit, the borrower’s income,
and the house itself,” she says. “The borrower’s credit must meet minimum
guidelines; their income must support their ability to repay the mortgage; and
the house they want to buy or refinance must appraise for the amount needed.”
However, even if lenders flag
you as a risky borrower, you don’t have to resign yourself to being a lifetime
renter. Here are four scenarios that can cause lenders to consider you a
high-risk borrower — along with steps you can take to improve your situation
and increase your likelihood of being approved for a loan.
One of the quickest ways for a
lender to get a snapshot of your ability to make future payments is to check
your credit score and see
how you have fared with financial responsibility in the past. You can receive one free report from each of the three
credit-reporting agencies (TransUnion, Experian, and Equifax) once a year, and
some lenders will run an analysis to determine what can be done to bring your
score within an acceptable range.
W-2 employees working a minimum
of 40 hours per week are the most attractive to lenders. If you are working
part time, or if you don’t have at least two years of tax returns to properly
represent your self-employment income, acquiring a loan
becomes trickier. For the latter instance, Robson suggests asking a mortgage
professional to review your tax returns to determine how much home you can
While credit scores and income
are important, Robson explains that even more pressing are such larger issues
as delinquent child support payments, unpaid income tax liens, and delinquent
student loans. “If serious delinquencies show on a credit report, an
underwriter will simply deny the loan,” says Robson. “Therefore, a
borrower should bring those accounts current, and/or re-establish a payment
history prior to pursuing home-loan qualification.”
Lenders prefer that borrowers
be financially vested in their new home from the get-go. So if you don’t have a
down payment, you’ll have to jump through more hoops to showcase your financial worthiness, and private mortgage insurance will
most likely be a requirement of your loan. However, your lender may be able to
help you find down payment–assistance programs to help bridge the gap.
When guiding clients through
acquiring a loan, Robson suggests a laundry list of tasks they should tackle or
monitor. Among the top items on that list are acquiring a credit report,
working to pay down debt and bring all accounts into good standing, and either
securing funds for a down payment or searching for homes that allow 100%
financing. In addition, she suggests avoiding large purchases — such as a car —
prior to or at any
point during the loan-approval process. “Many borrowers ask me what is the
maximum they can buy that won’t affect their loan qualification,” says Robson.
“I tell them $30. If it costs more than $30, don’t buy it!”
By Kayla Albert - To view the original article click here