You’re ready to move from renting to owning a home. Problem is, mortgage lenders won’t approve you for the mortgage financing you need to purchase your home.
And you can’t figure out why. You pay your bills on time every month. You’ve never declared bankruptcy or foreclosure. Yet something is harming your credit and scaring away mortgage lenders.
The truth is, there are plenty of financial issues outside of missed payments, late payments and bankruptcies that can lower your three-digit credit score and force lenders to reject your application for a mortgage loan.
But before you worry about these issues, make sure to order your credit score and credit report.
Once you have your credit report, look it over for any missed or late payments. Those will cause your credit score to fall. If you don’t see any, and if your credit score is low — lenders today typically consider FICO credit scores of 740 or higher to be excellent ones — then it’s time to consider some of the other common financial flubs that can make your score drop.
Lenders get nervous when your debt levels are too high for your monthly income. The new federal mortgage-lending rules, known as the Qualified Mortgage rules, state that borrowers must have a debt-to-income ratio of no more than 43 percent to qualify for a Qualified Mortgage. This means that your total monthly debts, including your estimated monthly mortgage payments, must equal no more than 43 percent of your gross monthly income, your income before taxes are removed.
If your debts are too high, then, your credit score might fall and lenders might shy away from lending you money, even if you’ve paid your bills on time in the past.
Too many credit cards?
Lenders might get nervous, too, if you have too many open lines of credit or, in other words, too many credit cards. Why? If you have dozens of credit cards, you can quickly run up large amounts of debt. If you do this, you might find yourself struggling to make your monthly mortgage payments on time.
Remember, lenders today are supposed to be a more cautious bunch. They might not want to do business with consumers who have such easy access to possible high-interest debt.
Did you co-sign on your daughter’s car loan? Maybe you co-signed on a business loan for your brother. You are now responsible, too, for that debt. If your daughter or brother default on their payments, their lenders will come after you.
This means that the debt that you’ve co-signed for will be counted in your own debt-to-income ratios. This could make it more difficult to qualify for that mortgage loan because it could push you past the magic 43 percent mark.
Union Mortgage has some of the lowest mortgage rates. Apply today and find out how much you could be saving on time and money.
6705 Red Road Suite 508 Coral Gables, FL 33143