Top 5 Reasons You Don’t Qualify for a Mortgage
When it comes to buying a home, you’ll likely need a mortgage. Qualifying for a mortgage isn’t the easiest thing to do. In fact, many potential buyers don’t qualify the first time they apply.
It’s best to make sure you qualify for a mortgage before you start shopping, or you could end up wasting quite a bit of time. In addition, a pre-approval for a mortgage will help to ensure you know how much home you can afford.
Before you apply for a mortgage, understanding why you may not qualify is important. Here are five reasons you may not qualify for a mortgage.
Not Enough Saved
Although possible, it’s rare to find a home mortgage allowing you to buy a home without a down payment or with a low down payment. Typically, you will need at the very least 3.5% of the purchase price, but in most cases at least 5% will be required down. If you don’t have enough money saved, you may not qualify for a mortgage.
Bad Debt-to-Income Ratio
One of the most important factors lenders look at is the debt-to-income ratio or DTI. This ratio basically looks at how much money you make compared to how much you have going out in monthly payments. If it’s too high, which means you have too much debt, you’ll be denied for the mortgage.
Low Credit Score
While credit isn’t the only factor in the mortgage approval process, it’s still a very important one. If your credit score is lower than 600, you won’t be able to use an FHA loan program. This doesn’t mean you can’t find a lender with a program for you, but credit scores under 600 will struggle to get approved for a mortgage.
The good news with credit, it can be repaired. Often, you can do a few things to boost your score, and if you’re right on the line, it may not be that difficult to raise your score enough to get approved.
Inconsistent Employment History
If you’ve hopped from one job to another, it could send up red flags for a mortgage company. Typically, lenders want to see two years of solid work history, but this doesn’t mean you had to be at the same job for the entire two years.
What they don’t want to see is large gaps in between jobs or changing fields of work. Another red flag may be a large fluctuation in the number of hours worked. Any of these could keep your application from being approved.
Unreliable or Hard to Prove Income Sources
While there are programs to help those with hard to prove income sources, you will need to have great credit and a good DTI to qualify. If you have unreliable or hard to prove income, it can be very difficult to get approved for a mortgage.
It’s best to make sure your income is consistent and traceable through bank statements.
If you’re looking to buy a home soon, and you want to make sure you get approved for a mortgage, make sure you understand the qualifications. Check your credit through a local mortgage lender, start saving for the down payment immediately, and make sure your financial situation is desirable. All of the above reasons you may not qualify can be fixed if you start working at it now, instead of after you’ve found out you can’t get approved for a mortgage.