When approaching home, condo or town-home buying we sometimes see our buyers being rejected when it comes to "loan approval". There are several reasons that a bank or Mortgage Broker might refuse lending to a buyer - Here are a few:
- Lack of Credit - it could be that your credit history is not "seasoned" enough.
- Bad Credit - Dependence on the "almighty" FICO score. Fair Isaac Corporation (credit scoring model).
- Debt to Income Radio(DTI) - you may pay out too much in bills each month.
The first step is to see where you fall on the "Lending Graph". Today, there are no "sneaky" approvals. Before most lenders will give their blessing, they have to do a full work up within their lending systems. Full applications including a 3 bureau pull of your credit, tax returns, bank statements and paycheck stubs are obtained and gone over with a fine tooth comb. There is also the verbal explanation portion of your approval process that takes place between you and your lender of choice with regards to your lifestyle. Not a Lifestyle that one might think of in relation to one of the protected classes. Lifestyle that has to do with other types of spending.
From the gathering of documents and your "lenders De-briefing" they can deduce your Debt to Income Ratio and have your information submitted to those that are lending out money for the purchase of real estate. When they get the blessing from the money source - they will be able to create a pre-qualification letter(weaker) to a pre-approval letter(stronger). The Qualification letter is usually required to accompany the Residential Purchase Agreement (the document that your realtor will write up when you want to make an offer on a home, condo or town-home).
In some cases - the Realtor will also be required to submit Proof of Funds and Fico Scores with the other required documents so they can be reviewed by a Lender that is associated with the Seller. If the owner of the property you are interested in is a Bank - they will want to have you double app (have you pre-approve with their mortgage lending arm), before your offer will be considered.
If a lender get's approval for you to purchase a home they usually will provide you with the maximum amount that you can finance. That amount will vary if there is an Home Owners Association that get's a fee for you living in a particular HOA controlled complex or housing tract. Your approval amount will also vary (be reduced) if the home you are buying is affected by Mello Roos or Special assessments.
The Three situations at the beginning of this write up can all be fixed. Nothing that time and a little determination won't change. Developing a game plan to do so is key.