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Gail Ruth

Gail Ruth
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Turned Down for a Mortgage? Read This before Reapplying

November 23, 2015 1:16 am

Turned down for a mortgage? You’re not alone. Many borrowers are finding it difficult to navigate lending requirements and reapply for a loan to buy a home, despite significant improvement in the housing market.

If your mortgage application was rejected, take heart. Mike Sullivan, director of education for Take Charge America, a national nonprofit credit and housing counseling agency, says prospective homebuyers can successfully reapply if they consider the following factors:

Cash Flow – One of the primary roadblocks to obtaining a mortgage is cash flow. At a minimum, borrowers need a 3-percent down payment and about $1,500 for closing costs. They must also take moving and ongoing maintenance costs into account, including utility deposits, appliances, a lawn mower, curtains and other miscellaneous expenses. As a general rule, prospective homebuyers should have at least $10,000 saved before shopping for a home.

Credit – Many young people today haven’t used credit, aside from student loans, so lenders have difficulty assessing their ability to pay back the home loan. Borrowers who fall into this bucket need to focus on building a positive credit history with three trade lines, such as a credit card, auto loan and signature loan, for at least two years before attempting to reapply.

Lifestyle – Many consumers assume if they can qualify for a loan, they can afford a house. With lenders approving 31 percent of gross salary for a house payment and 43 percent for all debt service, it’s easy to buy a house one can’t afford. It’s important to remember the mortgage is only part of the financial picture. Ongoing costs such as commuting, utilities, HOA fees, landscaping and general home maintenance need to be seriously considered, as well. It’s wise to limit house payments to 28 percent of gross income, and all debt service to no more than 34 percent.

“Many individuals and families are ready to pursue their dreams of homeownership after overcoming financial struggles, but they don’t always have a clear picture of what it takes, or how a mortgage could impact their long-term financial picture,” says Sullivan. “The more knowledge they obtain before entering the lending process, the better.”

Source: Take Charge America

Published with permission from RISMedia.