4 reasons for which you could be declined a mortgage

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4 reasons for which you could be declined a mortgage

13
Jul,2015

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You’re never too young or old for a home mortgage loan. Even if you are 16, you’re not too young for which you could be declined a mortgage. Thanks to the Equal Credit Opportunity Act of 1974, home mortgage lenders are prohibited from making any kind of discrimination based on everything from a borrower’s age to that person’s race, color, or national origin.

However, apart from these factors, there are numerous other criteria that are taken into consideration by mortgage lenders while scrutinizing a loan application. Here are four reasons for which you could be declined a mortgage:

1) You income isn’t up to the mark: While considering if you can afford a mortgage or not, the lender will check for any steady source of income you might be having. If you’re young and have a steady job, the monthly paychecks will advocate on your behalf. However, if you’re old and retired, your monthly income should be from Social Security benefits, pension, income from real estates, any legal settlements, and several other sources.

Before approving you with a mortgage loan, any lender would like to make sure if you’d be able to bear the monthly mortgage premiums. Usually, lenders require that the monthly premiums never surpass 43% of your gross monthly income. It doesn’t matter if you’re 20 or 70, the lender would make sure that the mortgage payments nicely fit in your monthly budget.

2) Your credit score is poor: In order to calculate the risks associated with the loan, lenders usually rely on your three-digit score. If you’re young, you’ll probably have a lower credit score due to insufficient credit history. Hence, you’ll have to pay higher interest on your mortgage loan.

Old buyers, may too have issues with credit score. If you are old and filed bankruptcy in recent past, missed payment, or have foreclosure in your records, you’ll fail to get a reasonable interest rate.

3) You won’t settle down: Taking on a mortgage loan is a better investment decision if you reside in the property for long – usually at least 7 years. Usually, homes get good appreciation when the owners hold onto them for at least 7-10 years.

If you are young and have just started your career, it’s better to rent out since you have no clue how long you’ll be there in one neighborhood or city. Job changes may take you to newer cities or even countries.

Even if you’re old, there is no guarantee that you’ll be able to get hold of your property for long. If you suffer a serious illness, you’ll have to move to an assisted living facility.

So if you aren’t sure how long you’ll be able to stay, taking on a loan to buy a new property may not be a wise choice.

4) You don’t have the downpayment: Whether younger or older, often it is seen that the down payment becomes a struggle for both. Even if you become eligible for a mortgage loan backed by the Federal Housing Administration, you’ll need to make a down payment of 3.5% of the purchase price. However, for traditional financing, you’ll need to make a payment of 10%.

This is a lot of money for someone who has just started his/her career. Old persons, too, have issues with the down payment since they’d need to make sure that their monthly income and savings will last them till the final day of their retirement. Spending a nugget or all of their savings for a down payment could put them at stake. Hence, proceed only when you have sufficient cash reserve even after the down payment.

However, if none of these factors are an issue for you, taking a mortgage loan should make sense.

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