Purchasing a home is exciting, exhilarating, frustrating and fun all at the same time. It is important to be ready when you start to look for a home to buy, the most frustrating part of the process is having to give more documents to the lender.
Having your credit and funds to close are a major part of being ready to buy a home however, there are some things that can cause the loan to be rejected. These are called Red Flags. One of these items may not be a problem but more than one can cause the loan to be rejected.
- Gift money--Fha allows a house member or a close friend to give the borrower money for the down payment. Close friend to some underwriters means a fiancee. When a borrower is using gift money to buy a home, it is an indication the borrower does not have the capability to save money before purchasing a home. If they cannot save money before closing, it is perceived they cannot save money after closing.
- Increased Housing Expense--The housing cost can not growth by more than 50% the current housing. There are more expenses owning than renting.
- A non-occupant co buyer--Fha will allow a non occupant co- borrower to qualify on the loan with the borrower. The non-occupant must be a house member. The non-occupant borrower usually will not make the mortgage payments, however the loan will affect their credit. When a borrower needs a non-occupant co-borrower this usually means they cannot qualify for the house they are buying.
- Adjustable Rate Mortgage (Arm)--Since the mortgage meltdown, it is difficult to get an adjustable rate. The adjustable rates are other indicator that the house the borrower is purchasing is too expensive.
- Previous credit problems--The underwriter will look at the credit history, if credit problems have been cleared within a few months of development a loan application, the loan could be rejected. credit problems should be cleared at least 12 months before applying for a mortgage loan.
- Ratios exceed the guidelines--The housing cost for Fha is 31% of the gross monthly wage and the debt to wage cost is 43% of the gross monthly income. There must be strong compensating factors for an underwriter to approve a loan that exceeds the ratios.
- Less than 18 months with the current employer--job stability is very important, even with the economy as bad as it is, the underwriter must know the borrower has the capability to keep a job. Some people change jobs often. The mortgage is in jeopardy of foreclosure if the borrower does not have garage income.
- Less than 0.00 left after closing--When a borrower has less than 0.00 left in the bank when they close on their loan, they should re-think buying a house. It will take far more than 0.00 to move.
- No credit History--Some people chose not to have credit and pay cash for everything. Unfortunately the lender is not able to see how they pay others. This alone may not cause the loan to be rejected but may be rejected with other red flag items. Non-traditional credit will be used to get a pay history. This can include utility bills, car payments that do not article to the credit bureaus, rental payments (Not housing). The non-traditional credit must have a 12 month payment history with no late payments.
- No banking history--Three months of banking statements must be provided. Buyers that do not have a bank list must get one and they should do that 3 months or more before applying for a mortgage loan. The lender must know that the borrower has money to close on the loan and the capability to save.
Owning your own home is a breathtaking thing but it is so important that the borrower is educated before starting the process.
Educate yourself.
10 Red Flag Items That Can Cause Your renewal Mortgage Loan To Be Rejected