Applying for a home these days requires detailed documentation. Expect to show everything from full tax returns, pay stubs, and bank statements to letters of explanation regarding your credit, debit, income and assets. Here are some common roadblocks you may face in your mortgage process and how you can fix them.
Changes in your income – If you have an inconsistent income for the past two years, you may have an issue. Lenders like to see two years of more or less consistency , but there are ways to work with that. This is a type of thing that can make or break your loan, especially with income outside of a traditional fixed salary.
Your debt eats too much of your income – A lender considers what your payment to income ratio will be with the new mortgage, so you can encounter a problem if your consumer debts are just too much for the mortgage amount you are applying for. If your debt to income ratio exceeds 45%, you’ll need to make a change in reducing the payment on the mortgage, reducing/removing payments on consumer loans and re-evaluating your home.
Paying off your debt the wrong way – Paying off credit cards can be tricky, especially if not done correctly. When you pay off consumer debts to qualify for a mortgage, the account has to be closed as well. This can be problematic, as closing credit cards can have a negative impact on your credit score. An option for this issue involves getting an updated credit report that shows debts are paid off in full without any payments due.
Negative events on your credit report – Lenders run each borrower through a comprehensive background screening through multiple fraud databases. If you are not sure about something financially related to your loan application, ask your loan professional. Should any foreseen roadblocks pop up in your mortgage loan process, call your loan officer right away and explain the situation to figure out what will be needed to satisfy the condition.
