1. Bad Credit Score
Your credit score plays a big role in determining what types of loans and rates you’re eligible for. Your credit history is a great way for a lender to tell whether you’re a risky investment or not. Check your credit file with the credit reference agencies (Equifax, Experian, and TransUnion) to see what information they have about you.
If any of the information on your credit report is wrong, you can correct it. If you’re continuously making late (or missing) payments on credit cards — especially cards with high balances — you’re making it worse.
A bad credit rating means potential lenders will worry about your ability to manage debts and pay back your mortgage on time.Getting a mortgage with bad credit is possible, but you’ll usually need a large deposit or a guarantor.
2. Debt – to – Income (DTI) Ratio
The debt-to-income (DTI) ratio is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income. Your gross income is your pay before taxes and other deductions are taken out. The debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments.
Before approving you for a mortgage, lenders review your monthly income in relation to your monthly debt, or your debt-to-income (DTI). Your debt to income ratio is what lenders look at along with your credit history to evaluate whether a borrower can repay a loan.
3. Low Down Payment
Homebuyers will have to pay down payments that equal 5–25% of the total value of a home, but there are certain home mortgage loans that don’t require a down payment. Any lender wants assurance that you can pay the mortgage and a strong indicator of your ability is what you bring to the table. If a lender decides that your down payment isn’t enough, it could mean they won’t accept the loan application.
To avoid this, talk with lenders who specialized in low- and no-down-payment mortgages, to get a list of qualification requirements. Lenders were willing to offer 100% financing to borrowers in certain scenarios.
4. Job Status Change
Self-employment or job-hopping can both be challenging to overcome with mortgage applications. Rapidly switching employers and being in-between jobs can be grounds for application denial. If you work for yourself, it can be harder to get a mortgage as lenders will worry about whether your income will fluctuate from month to month.
It’s best to stay employed with the same company for at least two years, and to have documented self-employment income for longer if that is the case. Consistent employment history can be a very valuable thing when applying for a home mortgage loan. In fact, many lenders require two years of consistent employment before signing off on a loan. The reason is they want to know you’re able to hold down a job long enough to pay back the money they’ve loaned you.
5. Opened a New Credit Account
Credit Card, Personal Loan, Car Loan, and Other Credit Accounts can change your debt to income ratio. Increase your debt-to-income ratio and could cause your loan officer to worry about your ability to make your mortgage payment.
Don’t open any new credit account that will affect your DTI result and an increase in your debt load. Practice this for 6-12 months before you start the homebuying process. You’ll also need to continue this practice until after you get your house keys.
6. Left Something off in Your Loan Application
Your lender wants to know all about you. Skipping important details in these sections can cause alarm unnecessarily. Disclose all your debt, judgments and other financial-related details to your loan officer upfront.
Your loan officer should carefully review your application to make sure it’s filled out completely and accurately. A small error like missing a zero on your income or accidentally skipping a section could mean losing your dream home.
7. Property is Overpriced
Before approving any home loan, the lender will verify the valuation of the property. Sometimes a property’s value isn’t enough to back the amount of the mortgage loan being applied for.
Your lender may be worried that it will be unable to recoup its losses if you default on the loan and it has to sell the property. Your application to purchase a property may also be denied if the property you’re buying is ineligible for financing.