Q&A Articles

Turned Down for a Mortgage? Prepare to Apply Again.

Posted in: Homeownership, Q&A

More prospective homebuyers are eager to enter the market as the economy improves. Yet in this post-recession world, many borrowers are finding it difficult to navigate stricter lending requirements and successfully reapply for a loan after being turned down.

If you’ve been turned down for a mortgage and want to know how to prepare to apply again, start with these tips.

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

Build Your 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 category 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.

Avoid a “House Poor” Lifestyle: Many consumers assume if they can qualify for a loan, they can afford a house; but that’s not always the case. 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 commitment of owning a home. You should also consider ongoing costs, such as commuting, utilities, HOA fees, landscaping and general home maintenance. It’s wise to limit house payments to 28 percent of gross income, and all debt service to no more than 34 percent.

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