Why Won’t My Mortgage Loan Get Approved?
1. Your credit score is not what you think
Often times, consumers get their credit score from one credit bureau and think that’s what the mortgage lender will use. In actuality, mortgage lenders pull your credit score from all three major credit bureaus – Experian, Equifax and Transunion – and use the middle score to determine the risk. Consumers also need to understand that the balances on their accounts can cause their credit score to fluctuate. You may be pull your credit score on the 5th of the month and see a different score than what the lender sees when receiving it on the 15th. You need to have a minimum credit score of 620 in order to be approved.
2. You have gaps in your job history
Though the job market is tough, having reoccurring or large gaps in your employment history can hinder your chances of getting a mortgage. A mortgage lender will review your 2-year employment history. If you’ve had a job gap longer than six months and can’t provide a logical explanation, then lenders will see that as a red flag.
3. You have no credit history
You may be struggling to get a mortgage because you have no credit history. Your credit history shows a lender you are able to pay back the loan. Most lenders will not lend to someone without a credit history. An alternative option to a traditional mortgage is purchasing a seller-financed home. Seller-financed homes are for sale by the owner and tend to have more flexible rates. You will make payments to the owner, rather than a bank, unless the person chooses to sell their mortgage note.
4. You chose the wrong type of property
Second homes and investment properties generally come with more stringent terms. If you are looking to purchase a condo, for instance, most lenders won’t issue a mortgage loan unless the property is approved and most of the units have been sold.
5. Your income is unclear
If you work an hourly job which allows for overtime, you want to have that income qualify. For hourly employees, lenders have to convert your average hourly wages into a monthly income figure. In some cases, this can translate to less money on paper. You would need to work overtime or two jobs for the two-year period a lender reviews in order for them to qualify. Be clear with your lender about your income and how your compensation works.
6. You have too much debt
Consumers who have outstanding debt with other lenders are unlikely to get approved for a mortgage loan. Before applying for a mortgage, do your best to reduce your debt by paying bills on time and paying more than the minimum payment.
If you fall into one of these categories, you may have difficulty getting a mortgage loan. By addressing your situation and understanding what mortgage lenders look for, you can increase your chances of getting approved.