Saturday, February 23, 2013

Rejected: Loan Denial

You’re all set to move out of your apartment, your parents’ house, or even the house you’re renting to grab your share of the American dream, your own home. Perhaps you’ve been picking up those free real estate books at the grocery and doing the online mortgage calculator to get a feel for what you can reasonably afford. You’ve talked to your husband, fiancé, or even to your friends about your future home. Everything is coming together, you may have your eye on a Cute Cape Cod or Ranch, but your loan or pre-approval is turned down.

Real estate agents do not want to waste their time showing houses to people who are not pre-approved. Banks used to give loans away to everyone who walked in the door from instant approval to 0% down. The rash of foreclosures and loss of financial integrity are the price the banks paid for their previous freewheeling attitude. Now, they are digging themselves out of a hole, and unfortunately you may be the victim of their sudden reluctance to lend money.

Currently 25% of the people who apply are denied. That is a whole lot of people. Here are some of the reasons, but not all.

1.       Self-employed- you own your own business. It could be a great business, but business revenue can vary. You will need at least two years of previous taxes to show a steady stream of income.


2.       Credit Score. Quicken Money site advises you should have a credit score of 640 to get a loan. That will get you a loan with a hiked up rate, definitely not the low one your bank advertised. You really need one around 750. The higher the better.


3.       No Down Payment- It helps to have at least 5% down payment.  You might think you have five percent, but consider closing costs and taxes.


4.       You’re New to the Housing Market- Some banks and mortgage companies want a rental history first, with rent being in a similar ballpark. Ex: If rent is only $350 and you are moving into a house with $1200 payments, the bank will worry that you never paid this much money per month before. You might not be able to pay the higher mortgage payment.


5.       New Job-just got a great job with a fabulous salary? It’s not the time to try for a home. Wait at least 6-12 months first.


6.       Debt- if 45% of your income is going to debt, then you can’t afford a house. This takes in consideration college loans, credit cards, outstanding loans, and car payments.


7.       Shopping  for the Best Mortgage Lender-if you go through the process of pre-applying with different lenders, then your credit takes a hit as your credit score is ran, which in turn lowers your score. Thinking of buying a house, then don’t take out any new credit cards either.


8.       Too many bills, not enough income.


9.       Recent Big Purchases- a car, boat, or RV would do it. Secure the home loan before making the big purchases.


10.   Wrong Lender-you picked a big name bank who scrutinizes you very carefully. A small home town lender may not be as picky. Often your realtor may recommend someone who works with her. This person is more invested in you getting the loan.


11.   Wrong House-often people want more house than they can reasonably afford. Often young couples want to start out with a home that took their parents 30 years to acquire.


12.   The Fixer-upper Home-Banks don’t want homes on their hands they can’t resell if you default.


In the end, even though you want your own house it may not be the right time for you.

Keep in mind, houses come with immediate expenses. Recently, my family purchased a new residence. We had to come up with money to fix the furnace, stove, and garage door. Everything did pass inspection, but these were items waiting to break down. We thought mistakenly we’d only have to paint. With planning your household budget, make sure you set aside funds for repair and upkeep.

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