Getting a mortgage is no small task. In fact, for those who have been through it they know that it can be a very difficult and involved process
Below are the three top reasons why people get denied a mortgage. Make sure you understand what not to do when you are seeking to get a mortgage.
Debt is Killer
One of the most common reason people can’t get a mortgage is because of debt. Lenders use what is known as the debt-to-income ratio to determine your ability to qualify for a loan. Each type of loan has different DTI limits. Give us a call to talk about the different ratios.
In short, your monthly debt payments (cars, credit cards) cannot exceed your monthly income by a certain percentage. If it does, that’s it.
DO NOT forget that you do not have the mortgage until the papers are signed. You can ruin your DTI ratio after you have applied and been approved. We have known people who have been approved for a mortgage, gone under contract and then purchased new furniture for their new house before the closing. Guess what happens? Their DTI goes through the roof and they get denied the mortgage.
Ohhhhh…the credit scores. We all know about this right? Many people don’t understand what a credit score really is. Basically, it is a number that tells a lender how likely you are to pay back a loan. It isn’t about how much money you have. In fact, people with lower incomes can have credit scores that are better than those with higher incomes based on how they manage their money and their buying habits.
If you have a lot of late payments, defaults or too much debt your credit score will be negatively impacted. A credit score that is too low will result in being denied a mortgage. A credit score that is somewhat low will result in higher interest rates that will cost you thousands of dollars over the term of the loan.
Appraisals and Property Value
This one is somewhat out of the hands of buyers for the most part. Banks and lenders will not give a loan on any property that appraises for less than the purchase price. That means if you have agreed to buy a house for $300,000 and it appraises at $299,000, the lender will NOT give the loan unless that $1,000 is made up somewhere.
Often, the buyers and sellers get together and work it out, but sometimes the difference is much higher and a resolution isn’t so simple. The lenders don’t care. It is the responsibility of the buyers to be aware of the market value of the house they are making an offer on and considering it when they make an offer. It may seem like a grand idea to offer more than a house is worth in order to get it. However, it can come back and bite you in the long run.
To talk to us about getting approved for a mortgage for your next home in Palm Beach, please give us a call. We would be happy to discuss your real estate options.