Avoid Loan Rejection To Take Advantage of Rates. With rates at record lows, 4.375% with 0 points, and home prices bottoming out I still hear of many home buyers that can’t secure a loan.
Banks have been locking down on the amount of loans they make. Don’t let that stop you from taking advantage of the low rates and prices in this market.
While low rates and lowered home prices should make it EASIER for buyers to qualify for loans it is actually harder when compared to the previous years.
Why is this? The lending community is still reeling over the hard hit they took from the subprime lending crisis. Loan practices have now been completely re-written to prevent a similar situation from happening.
What this means for the buyer is full documentation of all stated facts. Having documents to prove your income (paystubs & W-2), assets (bank records & investments), credit score, and all personal information is now required from all banks.
Here are the TOP 7 reasons banks have been denying home loan requests:
- Poor credit: The borrower may have a heavy down payment or excellent equity built-up in their house, but if their credit score is under a certain threshold, obtaining a new loan or refinance from a traditional bank is challenging. Even FHA (Federal Housing Administration) loans, which have traditionally catered to borrowers with lower FICO scores, have an average borrower credit score of 693, according to CNN Money, which is above the national average.
- Insufficient liquidity: If the borrower doesn’t have a heavy down payment (20%-30% for most banks) and strong excess liquidity, banks don’t want to take the risk on funding their loan.<!–more–>
- Lack of income: The borrower doesn’t have consistent proof of income for the last two to five years. Regardless of how good their credit score is or how much equity they have in their home, if they can’t show the bank proof of income, loan approval will be tough. This can be a big hurdle in the loan process, particularly for retired borrowers.
- Lying on the application: Banks have learned their lesson and are no longer putting up with borrowers stretching the truth on their applications.
- Debt: Borrower has excessive debt and their debt-to-income ratio exceeds the bank’s guidelines.
- Unemployment: Most lenders will like to see at least two years of stable work to issue loan approval.
- Self employment: Lenders are looking at self-employed applicants with a lot more scrutiny these days, making it very tough for these borrowers to get approved.
Credits to: RIS Media
Because of the many legal and tax situations that can arise through the sale and purchase of real estate ALWAYS consult with your ATTORNEY or ACCOUNTANT before making ANY decisions in ANY transaction.
* THIS ARTICLE WAS POSTED AT Thomas Feng’s Bay Area Connect *