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How To NOT Get Approved For Mortgage In Orlando, Florida

1. Being self-employed

There are lots of cool perks in being self-employed. You get to work when you want to, as long as you want to; you’re your own boss so basically, you run the show. But when it’s time to apply for a mortgage, there are two major downsides to it when trying to get a mortgage application approved.

Income isn’t stable in a business unlike salary from a job which is steady and reliable. From the lenders’ point of view, the way they see fluctuations in income in a small business is such fluctuations create a higher risk of default.

For a mortgage company, it would also be a hard time documenting income from a small business. It is much easier to document base salary than income coming from a small business.

A borrower that runs his own small business typically needs to submit at least two years of tax returns in order for a lender to judge the self-employed borrower’s income and then come up with calculations that are leaning more towards the most conservative figures when it comes to crunching the numbers.

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And as if that’s not difficult enough, bonuses and commissions also fall into a similar category of wage “variability” and are as difficult to document.

2. Credit score that doesn’t meet lender requirement

The average U.S. credit score some years ago was right around 720. But a study done by credit reporting agency Experian earlier this year, shows that the average U.S. credit score is now 750. And the average credit score is even higher in certain areas in the nation as consumers have wised up when it comes to handling cash and expenses.

If you’re an Orlando, Florida homeowner with credit score that doesn’t even make it as average and even goes as low as 620, don’t worry. You can still get a loan. But wait! The rate and fees will be much higher though. So you probably are better off not getting it.

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For lenders, they require borrowers to have a credit score that’s at least 640 before they give borrowers the money they need for home purchase.

But, some Federal Housing Administration-approved lenders will allow mortgages for consumers with credit scores that go below 640 and even lower than 600. That happens if there are compensating factors such as a high, documented income and a long track record of being prompt in paying your bills.

3. Not enough cash for the down

Recently, lenders have been asking buyers to put more money down proportionate to the amount of the loan. Most lenders consider borrowers with little money for the down as risky. Lenders will are likely to turn you down if you don’t have enough cash or cannot qualify for down-payment assistance.

Contrary to popular belief, you don’t need to put down as much as 15% to 20% of the home’s value. For example, with only 3.5% down you can still buy a primary residence with an FHA loan, if you qualify, and with just 5% down you can secure a standard loan through a Fannie Mae or Freddie Mac program.

But when you choose to put down less money, you will have to pay higher mortgage-insurance rates and need to have higher credit scores than you originally were required.

4.  Have never owned or rented a home

People who have never owned or rented a home are not going to have an easy time squeezing into the market nowadays. All borrowers will be required to have at least a two-year housing history by most of the lenders.  Verifiable rent payments can also be included as requirement.

At times there may be no requirement for rental history in cases where the borrower is a fresh graduate student. Often the requirement for first-time borrowers is they must pass a ‘rental shock’ formula.

Generally, buyers need to document no less than 12 months in a row of rent payments to get a loan but this won’t be required if you lived with a family member and didn’t have to pay any rent.

The market seems to be affected by this tighter rule. According to the National Association of Realtors, 32% of all buyers in the third quarter of this year were first-time buyers. Historically, first-time buyers accounted for 40% of all buyers.

5. New employees

High unemployment rates for the past five years have pushed most lenders to ask potential homebuyers to show at least a two-year employment history in the same field of work before they’ll write a loan.

In order for people who just re-entered the workforce to qualify for a loan, they must have held the same job for six months to be able to use that income to qualify for a loan. Technically, if you are a full-time, W-2 employee with a verifiable base salary or hourly income, you need only one pay stub to obtain a mortgage.

Usually, lenders will waive that requirement for fresh graduates that recently landed a job in their field of study.

6. DTI is too high

Keep your monthly debt payments at 45% of your gross monthly income so most lenders will still consider you a worthwhile risk. Any extra debt, however, will make you go beyond the highest threshold for approval.

A DTI of 45% is the highest most lenders allow but the FHA has allowed up to 50% with compensating factors.

You’ll get a better chance at getting approved if your debt ratio is below 40%.  But if you hit 45% or more you’ll still qualify so as long as you have compensating factors such as a long, stable work history, a high credit score and a huge amount of cash for a down payment, getting a loan approval at 45% DTI is still possible.

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7. Applying too often

Applying too often is a bad idea. Apply more than enough and you’ll be hurting your credit score. According to experts, numerous loan applications can pull down a credit score.

Numerous credit inquiries done within just a few days between each other can count against you. You should limit inquiries to five and do the inquiries two weeks apart from each other to avoid hurting your credit score. That’s not going to have much of an impact usually but sometimes even for someone with a credit score of 740, a single point shaved off their credit score can make the world of difference in cost or even getting a loan.

With mortgage shopping, the recommended limit is different. Contact only three potential lenders at a time. And try first contacting lenders that a friend or family member has been working with and was satisfied with.

8. Too much debt

Your bills are going to hurt your odds of obtaining a mortgage if you owe a lot.

Even deferred student loans aren’t always removed from your debt-to-income ratio.

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With an FHA loan you might get exclusion for the monthly (student loan) obligation, provided there is sufficient proof that the deferment will be for no shorter than a year after closing.

Meanwhile, you can offset your debt load if you receive payments for child support or alimony and can prove they will continue for no less than three years.

9. Major purchases

Keep your credit history as stable as possible during the time following application until closing. Avoid making big purchases before or during the loan approval because that impacts the credit report and in turn affect closing. A borrower’s credit report will be repulled anywhere from the day of closing to 15 days prior to confirm that there has been no substantial change to the credit profile since the time of application.

Always consult your lender before making big purchases or applying for new credit.

10. You went to the wrong bank

The lender you choose has a huge impact on the approval process. If you go to a big national bank, you’ll be bound by their guidelines and they may scrutinize you a lot more.

But, different banks have different rules on lending criteria. Approach a mortgage company; they’ll have access to different banks. They’ll find you one that suits your needs.

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Chris Brown
Chris Brown is the premier expert on HARP loans and Government FHA and VA loans. Please visit The Mortgage Chili Blog
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About Chris B.

Upside down? Call Chris Brown. 321.300.loan [5626] FHA Streamline Refinances - www.FloridaStreamlineRefinance.com Harp Refinances - www.FloridaHarpGuide.com Harp 3 Inquiries - www.budurl.com/Harp3 Purchase Pre-Qualification - www.FreeScenarioReview.com

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Chris Brown
Chris Brown is the premier expert on HARP loans and Government FHA and VA loans. Please visit The Mortgage Chili Blog