Although the financial markets have tightened lending guidelines and financing requirements over the last few years, the right advice when applying for your loan can make a big difference.
Not all loans are approved. And even when they aren’t approved immediately, it doesn’t have to be the end of your real estate dreams.
There are many reasons why a mortgage loan for the purchase of your real estate could be declined.
Here are a few things to understand and prepare for when applying for a mortgage:
Loan-to-Value Ratio
The loan-to-value ratio (LTV) is the percentage of the appraised value of the real estate that you are trying to finance.
For example, if you are trying to finance a home that costs $100,000, and want to borrow $75,000, your LTV is 75%.
Lenders generally don’t like a high LTV ratio. The higher the ratio, the harder it normally is to qualify for a mortgage.
You can positively affect the LTV by saving for a larger down payment.
Credit-to-Debt Ratio
Your credit score can be affected negatively, which in turn affects your mortgage loan if you have a high credit-to-debt ratio.
The ratio is figured by dividing the amount of credit available to you on a credit card or auto loan, and dividing it by how much you are currently owe.
High debt loads make a borrower less attractive to many lenders.
Try to keep your debt to under 50% of what is available to you. Lenders will appreciate it, and you will be more likely to get approved for a mortgage.
No Credit or Bad Credit
Few things can derail your mortgage loan approval like negative credit issues.
Having no credit record can sometimes present as much difficulty with your loan approval as having negative credit.
With no record of timely loan payments in your credit history, a lender is unable to determine your likelihood to repay the new mortgage.
Some lenders and loan programs may consider other records of payment, like utility bills and rent reports from your landlord.
Talk to your loan officer to determine which of these issues might apply to you, and take the steps to correct them.
Then, you can finance the home of your dreams.