Are you beginning the mortgage application process and want to increase your chances of being approved?
Have you had a mortgage application turned down and don’t understand why?
It can create a lot of insecurity when you don’t know the reason your mortgage application has been denied. It can also create a lot of stress when you decide to go into the process a second time.
To help you get the home of your dreams, in this post we list five stupid (but surprisingly common) reasons mortgage applications get denied.
Five dumb reasons your mortgage was rejected
- You haven’t built a credit history with credit cards
- You just got brand new credit cards
- You didn’t pay a medical bill
- You changed jobs
- You lied on your application
You haven’t built a credit history with credit cards
You might be thinking that credit card debt would be a strike against you, but that’s not really true.
A credit card debt that you’re making regular payments on shows that you have a record of making debt payment and actually helps your credit rating.
A lot of missed payments on your credit cards is definitely a negative, but carrying debt that you make payments on is not. It gives you a credit history that mortgage lenders can review. That’s much better than no history.
According to a recent report by the Consumer Financial Protection Bureau, about 45 million Americans are “credit invisible”. This means they don’t have enough history to have a credit report on file with the three major credit bureaus (Equifax, Experian, and TransUnion).
Having credit card debts and payments is a good thing. When used along with records such as rent payments, cell phone bills, and school tuition, it just could be what helps you get that mortgage.
You just got brand new credit cards
Did you know that signing up for a new credit card can lower your credit score?
New credit card applications can ding your credit score by up to five points, says Beverly Harzog, author of “The Debt Escape Plan.”
Five points may not seem like much, but if you are right on the border of qualifying for a mortgage, your new credit card could cause your loan application to be denied. Don’t open new credit card accounts right before you apply for a mortgage.
Even if your lender says your credit looks good, don’t open new credit cards or spend money on big purchases such as furniture until after you’ve moved in. A lender can yank your loan up until the last minute if they have reasons to suspect anything. It’s better to be safe than sorry.
You didn’t pay a medical bill
If you default on medical bills, the most common procedure is for the doctor’s office or hospital to sell it to a debt collection agency.
The debt collector will usually notify the credit bureaus that you’ve defaulted on your medical payments. This will definitely be bad for your credit rating.
If you are able to pay off your medical debts entirely, you should always take that route. If not, most doctors and hospitals will work with you to establish a payment plan.
Just like with your credit card debt, being able to show that you are making regular payments on existing debts can actually help you on your mortgage application.
You changed jobs
You might not think that changing your job would be a big deal, especially if you’re not making more money.
However, mortgage lenders like to see at two years of consistent income history when they are approving loans.
As a result, changing jobs shortly before you apply for a mortgage can hurt your application.
Unfortunately, you don’t always have control over your job, and layoffs happen. If you are laid off, finding a new job will take priority over buying a home.
When you do have a job but are considering looking for a new one, we recommend putting it off until after your mortgage is approved.
You lied on your application
The fact that you should be honest on your mortgage application would seem obvious.
If you are tempted to exaggerate about your income, for example, realize that mortgage lenders are going to be doing their research before you get a loan.
Any misrepresentations on your mortgage application could be considered mortgage fraud. That’s not just going to get your loan denied, it could even result in criminal charges.
With mortgages, honesty is always the best policy.
Article Source: 5 Mortifying Reasons Mortgage Applications End Up in the ‘Reject’ Pile – Realtor.com
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The Law Offices of Lora Fausett P.C. provides real estate law services including loan modifications, buying and selling legal assistance, short sales and deeds in lieu, mortgage foreclosure defense, and more.