March 4th, 2016 7:43 AM by Jackie A. Graves, President
If you're trying to buy a house, there is nothing
worse than finding your dream home only to be turned down for a mortgage.
But that won't happen if you do your mortgage
shopping the right way.
"You should be working with somebody who
picks up the phone and says, 'We have this problem, and let's see what the
solutions are,'" says Sylvia Gutierrez, a mortgage professional in Miami
and the author of "Mortgage Matters: Demystifying the Loan Approval Maze."
The right mortgage professional, whether it is
a bank loan officer or a mortgage broker, will evaluate your credit profile
before you ever reach the application process, help you solve problems and
steer you to appropriate loan products. You
could qualify for one mortgage program but fail to meet the requirements for
That's important, because if you apply for a mortgage
and are declined, it may hurt your credit score. Plus, the form you receive
from the lender declining your application won't tell you why your application
"The form we send out to a borrower who's
turned down tells you nothing," says Casey Fleming, author of "The
Loan Guide: How to Get the Best Possible Mortgage" and a mortgage
professional in the San Francisco Bay Area. That makes it important to work
with an actual human loan officer who can answer questions. "There isn't
anybody else who can tell you why you're been declined," Fleming says.
"The underwriter's not going to talk to you. Nobody's going to talk to
When you apply for a loan, lenders look at
three major issues: your credit, income and assets.
Any one of those factors could hurt your chances, though Fleming says credit
issues, including having too much debt, are the most common roadblock.
Since the mortgage crisis, lenders have become
much more careful about verifying income sources. That makes it especially
important for freelancers and contract workers to deal with a loan professional
who knows how to make their applications attractive to lenders by providing the
If you've decided to buy a home, you should
find a good loan officer and get pre-qualified for a mortgage before you ever look at houses.
If there are any problems such as errors on your credit reports, collections
issues or any income that won't be counted, you want to be aware of that before
you find your dream house.
"Fixes are very rarely quick,"
Fleming says. "They're usually something you have to do over months."
Here are seven things to do to avoid being
turned down for a mortgage:
1. Get your credit reports
You want to look at your reports from all three major credit
bureaus (Equifax, TransUnion and Experian) to make sure there are no errors. If
you've got collection accounts or a few late payments, ask the creditor to
remove those, Fleming suggests. If your credit score is low, meet with a
mortgage broker or credit counselor and ask for suggestions to improve it.
2. Know what income a lender
Lenders like to see a two-year track record in your job, though
a new job in the same field probably won't be counted against you. A lender may
be happy to work with you even if you're in a first job in a field you studied
in college. But if you've just switched from dentistry to business management,
a lender may not be willing to count your income until you show two years of
you're a freelancer, plan way ahead.
If you're self-employed or own a business, a lender will want to
see two or three years of tax returns, to start. If you take a lot of
deductions to cut your taxable income, know that a lender will consider only
your net income, not your gross income. If you work on contract, you may need
to provide verification from the employer that the contract is going to
continue. "Freelancers are tough," Fleming says. If you're
independent, "you'd better have income on your tax returns, or you're not
going to get anywhere."
4. Pay off any debt you
can before you apply.
When deciding whether to grant a loan, a lender will consider
all your debt, including student loan debt, credit card debt and car loans. If
the debt-to-income ratio is too high, you won't get a loan. For most mortgages,
the debt-to-income ratio for all debt can't be higher than 43 percent.
5. Be able to source any
funds you play to use.
The lender will want to know
where you got your down payment. If it's a gift or a loan from family, you will
need to specify which and document that the family member has the money and can
afford to give it to you. If your parents give you money, for example, they
will need to show bank statements and provide a gift letter.
6. Find a good mortgage broker
or loan officer.
All brokers and loan officers are not alike. Get recommendations
from real estate agents, friends, colleagues and professional contacts.
Ideally, you'll interview several loan officers and then choose the best. A
good mortgage broker is going to shop your loan among multiple lenders to find
the best deal for you. The expertise comes in when the broker evaluates your
situation and then puts the package together to submit to lenders. "It's
very important for the borrower to have these conversations with the
lender," Gutierrez says. "There are a lot of technicalities that
could mess it up along the way."
7. Do not apply for a loan
until you talk to an actual person.
Many of the online sites that say they offer loans really are
lead generation sites that sell your information to mortgage brokers. Your best
option is to find a local mortgage broker with strong recommendations. But if
you choose to work with an online lender, make sure you have a specific loan
officer you can talk to by phone assigned to your case for the duration of the
process. This is not something that can be automated.
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