Four Common Barriers to Getting a Mortgage Loan

Taking advantage of today’s low mortgage rates is something that many home buyers are trying to do. Unfortunately, many of them get to their lender’s office only to find out that they do not qualify for a mortgage loan. There are several reasons why a potential buyer may not qualify for a home mortgage loan, but here are four of the most common reasons.

1. Credit Score – The most common reason why a potential home buyer would be denied a mortgage loan is their credit score and financial history. These days, a buyer must have a credit score of at least 600 to even be considered for a mortgage loan. Even with that, they would only qualify for a federal home loan. Private lenders won’t even look at you for a home loan unless you have a score of at least 700. Five years ago, these numbers were about 10 percent lower than what they are today. Make sure you know your credit score before you apply for a home loan to save yourself some time and embarrassment.

2. Income Scrutiny – With the recent problems in the mortgage industry, lenders are being more careful about who they give a mortgage loan to. This means you are going to face greater scrutiny in terms of your income, job security and ability to repay the mortgage loan as agreed. You may even have to prove the value of your assets in case you lose your job or become disabled.

3. Down Payments – There was a time when a small down payment was enough for a mortgage borrower to secure their loan. These days, however, lenders are requiring buyers to have a down payment of at least 20 percent before they will even consider them for a home loan. In addition to that, your debt-to-credit ratio must be no more than 35 percent.

4. Appraisals – With the large number of foreclosures and short sales, lenders are being stricter about who they offer a loan to. These foreclosures are also bringing down the value of many homes. Depending on the sale price of the home and the area’s market value, lenders may feel that a home’s price is overvalued. As a result, they may deny your application despite you being able to fulfill the other requirements to be approved for a home loan.

These are just a few of the barriers that home buyers face when they apply for a mortgage loan. If you know about the obstacles you will be facing, you can prepare yourself for them and possibly make adjustments in your credit score and other areas so you will be a better candidate for a mortgage loan.