MCP Help Blog

You’ve probably heard; it’s harder to get approval for a home loan than it used to be. And if you’re a first-timer, chances are you have the deck stacked against you–a short or spotty credit history, less time at your job, and a smaller bank account. But you have options if you didn’t get an approval right away.

Find out what you’re missing. Then get creative. For example, if your lender said you don’t make enough money, don’t think you’re going to have to go to medical school before you can afford a home. What the underwriter is really telling you is that your income isn’t high enough to support your new house payment and your debts. So one way to get approved for more house is to cut your debts. And many lenders stop counting a debt against you if it will be paid off in less than ten months. By paying the balances down until there are less than ten months’ payments left, you can free up a lot of income for housing expense.

Another way to offset inadequate income is to lower your mortgage payment by getting a loan with a lower rate. How do you accomplish that? By paying the lender for a lower rate, or rather, getting a motivated seller to pay it for you, you might be able to get your ratios down to an approvable level.

Finally, get some “compensating factors.” Many programs including FHA loans allow underwriters to stretch your ratios a bit if you can give them a compelling reason to do so. For example, if your current housing expense is more than your new mortgage payment would be, it’s obvious that you are capable of making it even if the ratios are a little high. Similarly, having at least three months’ expenses in the bank after you close your loan (called reserves) makes you a better investment because you could weather a financial hiccup with your savings. A seller can help you here too–by paying all your closing costs, leaving you with more money in the bank and a better-looking application. Another compensating factor is having a job with bright prospects for increased earnings, or a demonstrated history of saving money and being conservative with debt.

Finally, if credit is the issue, look at several lenders to see what grade you are and see what you have to do to move up a notch. Your most recent history is most heavily weighted, so it behooves you to start paying your bills on time right away. In a matter of months the bad stuff will begin to fade and you can move up. A good loan agent should be able to help you.

Your lender owes you more than just a letter declining your application and a smile. Find out what is needed for approval and what you need to do to get there. Then take action and get your home.