There are several reasons that you could be considered borderline on
your mortgage loan application.
1. Debt to Income is to high
2. Loan to Value is to high
3. Credit history is questionable
4. Employment history does not show stability
5. Low down payment or source of down payment looks like a loan
6. Misc. factors including (legal issues for your state of residence,
appraisal confidence is weak, weak housing market, etc.)
You can do some things to help your situation – sometimes. The first
thing you need to do is ask the underwriter / loan officer to tell you
specific reasons you are considered borderline. They should be able
to tell you and possibly give you some hints to help you get into the
loan. It could well be an overall credit issue that could be fixed if
you could slightly adjust some of the factors that will relate to the
decision.
1. Debt to Income Ratio
This can be difficult to change and.. you may not want to. You really
have two options here. One is to reduce debt and the other is to
increase your down payment. When I got into my first house, I did not
qualify so I sold my car and bought a junker that would get me to work
and back. This eliminated the auto loan debt and gave me a little
extra down on the property allowing me to qualify. Since auto loans
are easier to get than home loans, I got a new auto loan within one
month of getting my house.
Generally, I would recommend saving money for the down payment rather
than paying off debt. Once again, check with the underwriter to see
if you your DTI is marginal and if paying down debt will help.
2. Loan to Value
The higher appraisal can help so long as it looks reliable to the
underwriter. I always question appraisals that are higher by any
significant margin than the selling price. Usually, the LTV is
calculated by the lower of the appraisal or the purchase price so a
high appraisal does not help.
One trick people will use is to get into a house and 6 months to a
year later get a home equity line of credit. These are easier to get
than first mortgages with most of the same tax benefits. If you have
money up front you can use to reduce debt or increase the down
payment, you can use it now and then get an equity loan later to get
the money back. The end result is a larger home loan (when you
include both loans) without the difficulty credit qualifications
needed for a first mortgage.
Note: You still are not going to get more money with any loan than a
lender feels you have the capacity to pay back.
3. Credit History
Look at your credit report. There are three main credit bureaus.
www.equifax.com
www.experian.com
www.transunion.com
To determine your credit worthiness, most lenders look at your credit
score. At the bank I work at, 700+ is good and we do not lend below
640. On some types of loans we don’t lend below 680. There is not
much you can do to change your score in the short run. It takes time.
The credit bureaus should be able to explaine your score and the
factors that go into it. I have only tried Equifax – Score Power and
it will let you see how your score would change based on changes you
make with your existing credit. The other credit bureaus should do
the same.
4. Employment History
There is not much you can do about this one. If you have been in
college and got a job after graduating, you can often count some of
the school time as employment. Often you need to write a letter to
the underwriter explaining that although your job history is short, it
is because you were training for a job through education and moved
into the workforce within a few months of completion.
5. Low down payment
If you do not have funds available now but can get them through
selling items, or asking family, you will need to document the source
of those funds. Usually a receipt of sale for an item works. I used
a receipt for the sale of my car to document the extra money I had
from that sale.
If the money is from family, you need to have a notarized contract
stating that the money is a gift and that it is not a loan in any form
and that you are not obligated or expected to pay the money back.
You may choose to pay the money back to the family member at a later
date but that would be informal as you would not legally need to.
6. Misc. Factors
Several other factors can make a difference in the purchase of the
home. It could be that there are state laws effecting multiple
residence dwellings or that rental incomes are not stable in the area
you are buying.
Once again, talk to the underwriter to make sure you understand what
all the factors in the decision are.
Final note:
Underwriting is based on guidelines that each bank sets. There are
some who are easily approved or denied, and than those who are
questionable and some judgement decision will be needed. Since you
are in this last category, you could be denied with one lender and
approved by another. If you understand where your credit is at, you
can often meet with different lenders to discuss your situation before
you put any money into the lending process.
You can shop around somewhat to find the lenders with the lowest rates
that would accept your application.
If you shop around, most lenders will want to pull a credit bureau on
you. Don’t let them do this unless you plan on going through the full
application with then. Too many requests for credit can hurt your
credit score. Bring your own credit bureau, make sure you know and
can discuss all the factors that will go into the decision. I.E. Debt
to Income, Loan to Value, Credit Score, Down payment amount, etc.
This will help you determine which lender to work with and how they
can help you to get into your house.
Good Luck. |
