As interest rates rise and rising housing costs swells lenders' portfolios with riskier loans, lenders will tighten underwriting rules making it tougher to buy a home.
Still - in hot markets and in cool ones - the fundamentals apply.
Getting a loan application approved is often knowing how to keep lenders from saying "no." To that end, here are the Top 10 reasons loan applications wind up the circular file. There are more, but these top the list.
1. Being in denial about what you can really afford. Apply for too much and you could be out the door faster than you went in. Let the lender decide what you can afford to borrow. From that, you decide what your budget will realistically let you afford to pay each month Get pre-approved with a bona fide, carved-in-stone pre-approval that guarantees in writing a loan amount, interest rate and as much of the other loan terms as possible.
"It makes your offer more attractive to sellers," said John Gregory of Benchmark Mortgage.
2. Poor preparation. Get all your docs in a row. The more information you have available at application -- proof of income, investments, assets, debts, tax returns for the self-employed, even addresses, current and past -- the more complete the loan officer's analysis can be in a more timely manner.
3. Misunderstandings. You may need loan programs explained. Industry jargon about an "index," "margin," "T-bills" and other terminology is familiar to real estate and mortgage professionals, but likely not you. Your loan representative can help you with any terms you may not be familiar with, you can visit many online glossaries or pick up one of many real estate mortgage books, virtually all of which contain a glossary.
4. Not realizing you are self-employed. First-time buyers who are self-employed (which can include working at home, being paid by commission only, or owning 25 percent or more of a business) often need to show tax returns as a proof of income. Communicate your employment status before the loan hits the underwriting process and avoid snags later.
5. Overlooking property
repair problems. Government loans on homes in need of repair
need to come with instructions explaining who is responsible for
repairs and when. Ask the loan representative for assistance.
6. Third party vendor problems. Credit reports and
appraisals typically come through on time but other documents --
tax returns, home inspections, investment reports -- may require
extra early efforts to get them to the table on time.
7. Lack of understanding about the loan process. A
working knowledge of what happens during the processing,
underwriting and closing of a loan is crucial. Understanding
time frames, documentation and the responsibilities of all
parties is also key.
"Despite our efforts to simplify the mortgage process, it is
still a very complicated process," said Gregory.
John Gregory advises, "Make sure that you get a Good Faith
Estimate of your closing costs to ensure that you understand
everything that will be paid at closing. This document will also
be a great reference when closing arrives to make sure
everything is as it should be."
8. Undocumented explanations for credit problems. Check
your credit report before you apply for a mortgage. You need to
know before the lender about errors you can correct, problems
you may need to explain, and delinquencies you can clean up.
9. Unverified closing funds. If your loan requires funds
from you to close (down payment, gifts, cash to keep the loan
from exceeding 80 percent of the value, etc.), you may have to
show bank statements or documents that prove how long the funds
have been in place, the source of the funds, your asset level,
etc.
"Do not be afraid to read the closing documents and statements
carefully. Whether buying or selling, you've got a lot on the
line with these documents and want to make sure that the figures
are correct and as agreed," said John Gregory.
10. Poor communication. There are many parties involved
in a residential real estate transaction -- buyer, seller, real
estate agent, mortgage banker, home inspectors, appraiser,
attorney and settlement or escrow agent -- and each must have
complete understanding of what is going on at any given time. A
good loan representative, broker or real estate agent will help
keep the lines of communication open.
"A lack of communication is the number one reason deals fall
apart based on 25 years in the business," says John Gregory a
senior partner with American Trust Corporation.
"The client fails to tell the lender they just got laid off. A
large percentage of the down payment is a gift that has not been
seasoned for 60 days. All of these can be resolved as long as
everyone is communicating and not making assumptions that
everything will be okay."
Financing Tips
Mortgage Information
Why Buy?
Top 10 Reasons Loan Applications Are Rejected
Pre-Qualification Worksheet
How Your Credit Score Is Calculated
Can I Improve My Credit Score?
Pull Your Credit Report
Your Settlement Costs
Tips on Apartment Building and Multi-Family Property Loans
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