Top Reasons Buyers Fail to Qualify for a Mortgage
You've found the perfect Port Orange home or Daytona Beach area condo, and now there's just the question of how to pay for it. Interest rates continue to be very low, and there is no shortage of lenders willing to assist buyers in our area. But obtaining a mortgage is not always a guarantee, and it is better to have your ducks in a row now before that dream home slips away due to a failure to qualify.
A recent study by the Federal Reserve listed the top reasons that buyers fail to get a mortgage approval. Let's take a look:
Your Debt-to-Income Ratio is Too High
The number one reason people fail to qualify for a mortgage comes down to the basics of whether they can afford the proposed mortgage payment. The debt-to-income ratio is one of the top factors lenders use to grant mortgages as it measures how much your monthly expenses are in relation to your monthly income.
Higher DTI, generally above 45%, will signal to a lender that your debt obligations consume too much of your income and create a default risk for the lender. Calculating your DTI should be one of the first things you do in the home search process, as it will inform you of how much of a monthly mortgage payment you can afford and thus point you to a purchase price that will work for you.
*DTI = total recurring debt divided by gross income
Bad Credit Score of Lack of Credit History
The second most detrimental factor to mortgage approval is issues with credit scores and history. Especially in recent years, lenders have become more stringent in their evaluation of buyers' credit. It is not only major credit issues such as bankruptcy or foreclosure that will limit the ability to obtain a mortgage, but also others factors such as high utilization of available credit or a total lack of credit history.
No Job History
Another hurdle homebuyers encounter when trying to qualify for a mortgage is their job history. A lack of a job, maintaining inconsistent hours or part-time employment, and large gaps between jobs are factors that can hurt an applicant's chances of being approved for their loan. Consistency in your employment history is a big plus for lenders.
Generally, most lenders look for two years of steady employment before they are willing to sign off on a mortgage, but this is more a general guideline than a rule of thumb. There are exceptions lenders make for people and approve them for mortgages without having a two-year work history with an employer. For instance, if you work two part-time jobs or a well-paying seasonal job, have receipt of alimony or child support, or maintain a steady salary through gig work, you can still be approved. In some cases, proof of starting a new job is also acceptable.
Property Appraisal Issues
The final reason for failure to qualify is sometimes beyond the buyer's control: property valuation problems. Recently, on many quality Port Orange and New Smyrna Beach area homes, we have seen this issue come into play as high demand brings in higher offers, sometimes even above the listing price.
Appraisers often look at things in black and white, do not always have all of the facts, and tend to not have their hand on the market pulse to see trends upward. If an appraisal comes back much lower than your contracted purchase price, the mortgage may be doomed.
Work with 386RealEstate
We work with thousands of buyers, including many first-time buyers, VA loan and FHA loan buyers, and those who generally do not fully understand the way the home lending process works. We help our customers find the perfect home and ensure that their lender and appraiser have all of the pertinent details to help the customer obtain the mortgage and close on a home.
If you have any questions about qualifying for a home loan or to view homes and condos for sale across the World's Most Famous Beach, please contact us or call (386) 527-8577. We are here to help.