The National Bankers Association stated that 30% of all purchase mortgage applications either are abandoned or ejected. That equated to about 2 million rejected applications in 2010.
If you are ready to purchase real estate in the near future, examining these issues may get you into a new home sooner and with less stress by having your finances in order and know what to expect in this new restricted lending environment.
Income Issues. Make sure that all of your income, from all parties, is verifiable and will be counted as income. Stated income loans and self employed individuals will have the hardest time proving their income. Be prepared to prove all of your income with good documentation. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income, all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.
Income Ratios. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan.
Credit Issues. The mortgage qualifying FICO score falls somewhere in the range of 620 to 660, depending on which lender and which loan type you seek. Almost one-third of Americans have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.
Appraisal Issues. Property values were enabled to skyrocket by loose appraising standards, so be aware that even though Buyer & Seller agree to a sales price, an appraiser could likely value the property at a lower value. Most areas, Durango as well, are in declining markets and appraisers will watch values much more closely. Short Sales and Foreclosures are a major factor in declining home values along with increased pressure from a glut of inventory for sale. Be realistic in pricing and be prepared for any issues on value.
Property Condition Issues. With all the distressed properties on the market, and with most non-distressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot. In the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.
Technical Issues. The days when lenders just took your word for it are long gone. Applications with incomplete or unverifiable information are doomed. It is critical to keep your lender in the loop on any and all issues pertaining to the physical condition of the property as well as your financial picture. With income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.
Following these simple pointers should prepare you for your next real estate purchase.