Lenders Are Denying More and More Home Loans - But Why?
on Tuesday, May 21st, 2013 at 2:54pm.
In a market that has drastically changed over the past several years, general loan practices are becoming more and more jumbled. Everyone, including the banks, is becoming much more conscious about their money, and it’s becoming a problem for many home buyers – they aren’t getting their loans approved by the bank. It’s a fairly complicated situation, but here are a few simple reasons why this is happening, as well as some ways to avoid it happening to you.
1. Lack of Income
If you don’t have proof of income for the past several years, expect to have your loan denied. Banks will rarely take a chance lending to someone that cannot prove what kind of income they have recently made, even if they have a stellar credit history. Avoid this by being organized, and keeping track of the documents that show how much you earn.
2. Poor Credit
This is one of the most common problems facing home buyers, and it can be a deciding factor for the lender even if the buyer has done everything else right. There are limits and thresholds that your credit score must fall between, and it can make or break whether or not your loan gets approved.
It’s true – if you are self-employed, expect to have a little more attention paid to you by the lender. You certainly won’t have your loan denied for this sole reason, but it does give the lender reason to do a little extra research.
This one is fairly obvious. To a lender, you should have at least two years of steady employment; anything less, and you seem unreliable, or maybe even lazy. In one of the toughest job markets in decades, this may seem like an unfair assumption, but it is a necessary one.
5. Lots of Debt
How can a lender expect you to pay them back in an orderly fashion if your debt reflects a history of being unable to do just that? Again, this may seem to be unfair on the lender’s part (you may have debt from school, or inherited debt, that you weren’t able to control), but at the end of the day, the lender needs to make sure that the loan goes to someone who will pay it back in full.
Just because you may fit into any of the above categories doesn’t mean your loan request is all for naught. There are ways to negotiate your way into a deal even if your record is less than desirable. However, if you want a simple and easy experience requesting a loan, do everything you can to avoid as many of these as you can.