Smart SpendingSmart Spending

Why you can't get a home loan

Mortgages are now easier to obtain than they've been in recent years, yet a quarter of those who apply are turned down.

By MSN Money Partner Jan 9, 2013 2:26PM

This post comes from Chris Birk at partner site Credit.com.

 

Credit.com logoLeft out in the cold by a tight lending climate, prospective homebuyers are finally starting to see a thaw.

 

Image: House for sale © Ocean, CorbisFifty-one percent of respondents in the latest Fannie Mae National Housing Survey indicated it's now likely easier to secure a mortgage. That burst of confidence could help keep the housing recovery moving forward.

 

"Consumer attitudes toward both the economy and the housing market continue to gather momentum," Doug Duncan, senior vice president and chief economicst at Fannie Mane, said in a news release

 

Confidence and optimism. Momentum and recovery.

 

So why can't you get a home loan?

 

It's a question with dozens of possible answers. Despite the loosening standards, about a quarter of all people who apply for a mortgage are ultimately denied. Each potential homebuyer's loan file is different, but there are some broad, overarching issues that may be to blame.

 

Credit

This is probably the most common hurdle. Lenders will have a qualifying credit score depending on the loan type, your background and other details. That baseline also applies to anyone else on the mortgage. So you might have an 800 credit score, but if your spouse is lagging at a 530, you're going to struggle to obtain financing.

 

Even if you're going it alone, lenders in community property states may still factor in your spouse's credit. The average credit score for conventional purchase loans was 762 in September, according to mortgage software firm Ellie Mae (.pdf file). For FHA loans it was 701. Military borrowers interested in using their VA loan benefits will generally need at least a 620 score.

 

Debt-to-income ratio

Conventional and FHA lenders look at two different debt-to-income (DTI) ratios. The first, or front-end, ratio compares your monthly income with your housing costs. The second, or back-end, ratio considers the percentage of your income that goes toward major revolving debts like the mortgage payment, credit card bills and student loans.

 

Conventional lenders are generally looking for a 28% DTI ratio on the front end and 36% on the back end. For FHA loans, it's more like 31%/43%. The VA program only uses the back-end ratio and wants to see 41% or less.

 

Your DTI ratio may not be an immediate application killer. Lenders calculate it based in part on your estimated monthly mortgage payment. It might break your heart, but you can always run the numbers with a lower loan amount to try and get that ratio into qualifying range.

 

Cash on hand

Down payment requirements are here to stay (unless you qualify for a VA- or USDA-backed mortgage). Conventional lenders typically require at least a 5% down payment, while the minimum on FHA loans is 3.5%. In addition, you'll likely need to put down earnest money, which is basically a good-faith deposit with a seller, and be able to cover an appraisal, a home inspection and possibly other upfront costs.

 

Assets have become increasingly important in this tighter lending environment.

Employment

Lenders want to see stable, reliable income and employment that's likely to continue. The gold standard is generally two years, but that can vary depending on the lender, the loan type and the borrower's circumstances.

 

For example, service members who separate from the military and take civilian jobs may not have to wait two years, depending on how the new employment relates to their skill set, education and previous work serving our country.

 

What's especially problematic is self-employment. There are a lot of unknowns for lenders here, and they're almost always going to require at least two years of tax returns. Same goes for seasonal workers and those who work on commission.

 

Bankruptcy or foreclosure

Foreclosure starts hit a 71-month low in November, according to RealtyTrac, but they've impacted hundreds of thousands of homeowners since 2008. More than 1.2 million people filed for bankruptcy protection in federal court in fiscal 2012.

 

Each presents short- to medium-term obstacles to obtaining home loans. The waiting periods vary by event and by loan type. Bankruptcy means waiting anywhere from two to four years in many cases. The wait after a foreclosure can range from two to seven years.

 

More on Credit.com and MSN Money:

3Comments
Jan 10, 2013 8:30AM
avatar

The Credit Score companies are hurting Americans with their Phony Reports...

They should be outlawed, or better regulated..They make Many mistakes in their reports...

avatar
Welcome to NATIONWIDE CORPORATE FINANCELTD, This is a vibrant loan firm
in the heart of UNITED KINGDOM formed to help individuals who are in need of financial crises
and help them achieve their goals in life.

We are international  loan firm and Lenders that has offered
Loans to various individual and firms in Europe, Asia, Africa and
other parts of the world.

if you are really in need of a loan, just let me know ,
we offer loans to individuals as well as organizations who have
intentions of renovating houses and institutions,
debt consolidation, re-financing and also establishment of business
outfits.our obligation is
helping the needy to gain financial stability in order to meet with
the demands of living.

We give out loans from the range of $1,000 to $90,000,000.Our loans
are well insured and maximum security is our priority,at an interest
of 3% rate.

Available Loans we offer are,
1. Personal Loans (Secure and Unsecured)
2. Business Loans (Secure and Unsecured)
3. Combination Loan
4. Consolidation Loan And Many More:

Interested clients should please fill our application form below-

LOAN APPLICATION FORM { ONLINE FORM }
PREFIX {MR.,MRS.,MS.,DR.,etc.}
1)YOUR NAME...................
2)YOUR COUNTRY................
3)YOUR OCCUPATION.............
4)YOUR MARITAL STATUS.........
5)PHONE NUMBER................
6)MONTHLY INCOME..............
7)ADDRESS.....................
8)PURPOSE OF LOAN.............
9)LOAN REQUEST................
10)TELEPHONE..................
11)LOAN TERMS AND DURATION....Our company mailing contact box is
via-[nationwide_finance@live.com]

Try and see your self, for our wonderful services that does not exceed 2
Working days for loan processing and just only (1)hours 5 minutes
of loan Transfer .

Kindly contact us for urgent loan for instant approval.
Jan 10, 2013 8:43AM
avatar

 

You can't get a home loan because you live beyond your means, buy everything with borrowed money, don't pay your bills on time, have a previous bankruptcy (or two), and walked away from your last home because it dropped rather than increased in value. You have 25 credit cards in your wallet and can't keep a job more than a year.  That damn Obama and the new borrowing rules!!!

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More