Buying a home is a complicated task comprised of property selection and the mortgage approval process. While some consumers have the luxury to buy their homes for cash, the more common financial approach for home buying transactions are home mortgages issued by a lender.
Securing a mortgage is more difficult than ever as banks have toughened up the underwriting process associated with home loan agreements. Some basic requirements for home loan approval include having a credit score magic number of at least 730, larger than average down payments and proof of assets and income. Even with those factors in place, consumers with excellent credentials are still at risk for having their mortgage application rejected and here are some common reasons why.
Job Hopper
Government statistics have indicated that the average employee will hold 11 jobs during ages 18-44 (Number of Jobs Held, Labor Market Activity, and Earnings Growth among the Youngest Baby Boomers: Results from a Longitudinal Survey). Unlike the career paths of previous generations that were tried and true courtesy of pensions and regular pay increases, many contemporary workers rely on job hopping as a way to improve their income levels. While the strategy may pay off in the long run, mortgage seekers need to avoid making a career switch prior to conducting a mortgage search as it may prompt lenders to reject a home loan application.
During the homeloan approval process a lender may see a recent job change as an indicator of low financial stability and the potential for mortgage default down the line. This fear may cause a lender to retract their loan offer altogether, or even require borrowers to wait longer for approval as lenders wait to see if the career move was a stable and smart choice (MSN.com). Individuals looking to make a career change should ride out their current employment situation until a mortgage has been issued.
Shopping Sprees
Mortgage lenders are a fickle bunch that has been known to pull their mortgage offers for a variety of reasons including pregnancy (as the condition may negatively impact the verifiable income of a mortgage applicant). The fact is, mortgage lenders can retract their offers until the deal is officially signed, sealed and delivered and an individual who opts to take on more debt during that volatile mortgage process time period may lose the great interest rate offer they worked so hard on locking in.
Home buyers are advised to skip making any large purchases regardless of if credit or cash funds the transaction . When it comes to credit, credit scores are created from a mathematical algorithm and the credit to debt ratio is part of the equation. FICO scores are calculated using a numerical value showing how much available credit a consumer has versus the amount actually being used. It is not uncommon for mortgage underwriters to run a credit check both at the beginning and at the end of a loan application process. When more credit is being used, that can result in a lower credit score and a loan application being rejected.
While buying a large ticket item in cash will leave a credit score intact, it will deplete cash reserves and lenders factor that bank roll amount into mortgage approval status.
New Money
The nouveau riche have always been under the scrutiny of the public eye as new found wealth has been shunned by those who have accrued their status courtesy of old money. The elitist view of new wealth was common in Greece and contemporary mortgage lenders also view that money with a critical eye. While in olden times, the fear surrounding new money was relevant to social status; banks may consider new assets a fake out for mortgage approval.
In order to minimize their risk of a consumer defaulting on a home loan, mortgage underwriters investigate the assets a person has and documented assets are the most favorable type (MSN.com). Documented assets (AKA seasoned asset) are monies that have been stored in a bank account or investment portfolio for a minimum of two months and some underwriters may require that money to be on account even longer. Those financial reserves are considered to be a mortgage safety net and underwriters know that when that money is transferred in at the last minute, chances are it is not the resources of the actual borrower. Since underwriters want to get an honest impression of a person's financial stability, new money will alter the perception.
