June 4, 2015 by Leave a comment

You might be eager to jump into homeownership. Unfortunately, several things can derail a home purchase.

A mortgage rejection is frustrating and discouraging, but it doesn’t mean you’ll never be able to buy your own place. Here’s a look at six of the biggest threats to homeownership.

1. Co-Signing loans

Whether it’s your child, your sibling or your best friend, cosigning a car loan, a student loan or any other loan for another person can threaten homeownership. This is because the loan shows up on your credit report and you’re listed as a joint borrower.

Understandably, you’re not the primary account holder. However, you are held responsible for the loan if the primary borrower defaults. Cosigning a loan increases your debt-to-income ratio, and unfortunately, the more debt you have in your name, the less you’re able to borrow when buying a home. And sometimes, cosigning a loan can push your debt-to-income ratio over the limit allowed by a mortgage lender, which means you’re unable to get a mortgage until this debt is no longer in your name.

2. Job hopping

You might be a free spirit who loves to change jobs every six months to 12 months. But unfortunately, job hopping is a sign of instability. And from a lender’s viewpoint, you’re not stable enough to buy a home. Lenders want to see steady income and employment. Ideally, you should stick with the same employer for at least 24 months before applying for a mortgage. If you must switch jobs, remain in the same field. Additionally, your new income must remain the same or increase.

3. Not having a large enough savings account

Nowadays, lenders don’t only ask to see paycheck stubs and tax returns. They also request bank account statements. They’ll look at your savings accounts and other assets to see whether you have enough funds for a down payment and closing costs. And unfortunately, if you don’t have a sizable savings account, a lender might reject your application until you’re able to build your fund.

4. Not enough credit activity

If you get a credit card to build your credit history, make sure the bank issuing your card reports to the credit bureaus on a regular basis. When applying for a mortgage, the bank will check your credit history. And if you have non-existent credit, this can be just as damaging as having bad credit. Before applying for a credit card or any line of credit, speak with creditors and make sure they’ll report your credit activity to the bureaus every single month.

5. Credit report mistakes

The worst thing you can do is fully trust your creditors to report accurate information on your credit report. Creditors make mistakes, and sometimes they report a late payment or a collection account in error. So you need to check your own credit report at least once a year for accuracy.

If you notice an error, contact your creditor immediately to resolve the issue, or file a complaint with the credit bureaus. Credit report errors can reduce your credit score. And depending on the severity of an error, your credit score might be too low to qualify for a mortgage.

6. Poor credit habits

Mortgage lenders have relaxed their guidelines, and you can get a conventional mortgage with a credit score as low as 620 and an FHA mortgage with a credit score as low as 500. But although lenders have lowered their credit score requirements, your recent credit activity must be positive. For that matter, some banks will reject your mortgage application if you have more than one or two late payments in the past 12 months.

The Bottom Line?

Buying a home is a major accomplishment. Instead of wasting money on rent every month, you can start building equity and increasing your net worth. However, several things can put the brakes on buying a house. If you can identify potential threats to homeownership, it’ll be easier to make decisions that will help you reach your goal.

Matthew Trumbley is a Senior Mortgage Banker licensed in multiple states. Matthew has been with Total Mortgage since 2007 and can be contacted by phone at 203-783-5520, or by email at [email protected] NMLS# 13195


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