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Three Obstacles To Receiving a Mortgage Approval

September 15, 2014
From Loan Officer John Hendley

From Loan Officer John Hendley

A mortgage, for all of its complexities, is really a simple agreement that is based on a key question: Can home buyers afford to pay back the mortgage, each month and over time, with the income and debts they have today? It may seem more complicated than that, but that’s what all of the paperwork is trying to help a lender determine.

So what are the main obstacles to your customers receiving a mortgage approval?

Not enough income is coming in.
The W-2s that your clients provide along with proof of employment, rental property income, child support or alimony, etc.  are requested by the lender to learn how much comes in as income each month. If, after adding up all of the sources of income and determining how consistent that income stream is each month, it’s determined that your customer would have a hard time making their mortgage payment, the lender will decline to offer financing.

The solution: The customer can find additional sources of income or choose a home with a smaller mortgage. Another option is to provide a larger down payment that results in a smaller loan amount and related monthly payment.

Too much income is already going out the door.
Maybe the amount of money that’s coming in seems to be enough to pay for a mortgage, but too much of it is already committed to other debt or bills. A lender looks at the debt-to-income ratio to learn if borrowers will have enough in their budget for their mortgage after paying for other expenses.

The solution: Find ways to minimize debt. Pay off items/bills if possible. Are there monthly expenses that a borrower might give up to free up the cash for a new home?  A motorcycle?  A health club membership?

Income is not a problem; the client’s financial behavior is.
Sometimes you’ll have a customer who has excellent cash flow and can afford the monthly mortgage payment. However, they may not have always handled their money as carefully as today, and their credit history reflects that. Lenders look at credit history, summarized by the credit score, to predict how a potential mortgage holder might handle the payment on a home loan. If a customer has a low credit score caused by problems in the past, it will make it difficult to obtain a mortgage until the score can be brought up.

The solution: Talk with your Loan Officer who can share specific tactics with you about valuable tactics many home buyers can implement to improve their credit scores.

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