After saving for what feels like forever, you finally have enough for a down payment, and you’re excited to start looking for a house. But first, you start working on a mortgage pre-approval, so you’ll be ready when you find that dream home. At first, the pre-approval process moves forward exactly as planned. Until suddenly, it doesn’t. You’ve hit some roadblocks that could keep you from getting your mortgage – or new home – after all.
Well, hold on; all is not lost! Most mortgage roadblocks are fixable. So, before giving up, ask your loan officer for their advice and help overcoming the hurdle. Read on to learn how to resolve some common mortgage issues.
Credit Issue Roadblocks
This one might be confusing, especially if you took the time to check your credit report before applying. But if all you did was peek at your credit score, you may have missed an error. Common credit errors include incorrectly reported late payments and even mistaken identities.
If the roadblock you’ve hit does have to do with an error on your report, get busy correcting it as soon as possible. Identify the credit bureau reporting the error and contact them for instructions on making the necessary changes.
In the meantime, provide all the documentation you have regarding this issue to your lender. The damage to your credit score is another matter, though. Consider pausing your mortgage process to give corrections time to be reflected in your score.
But if your credit issues have to do with your debt, keep reading.
Excessive Debt Roadblock
High balances on revolving debt or too much total debt are guaranteed to lower credit scores. Consistently paying your bills on time won’t keep nearly maxed-out credit cards from lowering your score.
There are several options to fix this roadblock. Meet with your loan officer to create a fast, workable plan that will positively impact your score. This can include reducing your down payment and redirecting savings to pay down or pay off the balances.
Another option for accessing cash is taking a loan against your 401k account. Most 401k plans allow you to take a loan and make monthly payments to yourself. The loan won’t negatively impact your credit score, but the payment is included in your total debt.
A temporary strategy is to move a portion of your high balances to more credit cards. If you have cards without balances, you can spread some of your debt to those cards. This lowers your credit utilization (the amount of credit used compared to the total credit granted).
No matter what strategy you choose, you’ll need to wait for the lower balances to increase your score for the roadblock to be gone.
New Debt Roadblock
One more roadblock occurs when new debt pops up during the mortgage process. This one happens much too often. Even with the best intentions, and despite dire warnings, many borrowers open new credit to save on a purchase.
All they hear at the time are the words “interest-free” or “15% off.”
It’s a serious roadblock when new debt pops up that a lender didn’t know about. The debt is usually found via alerts lenders regularly receive for active loan files. Those alerts can stop a loan file in it’s tracks, or, at the least, cause significant delays.
The best thing to do is cancel the new debt and provide the lender with documentation to prove it’s closed. If you already used it for a purchase, pay the balance with your savings or other cash and close the account immediately.
Job Issue Roadblocks
Not having a stable job or a history of consistent employment is a serious roadblock. What’s not an issue is getting a new, higher-paying job during the mortgage process. You just need to provide the lender some additional documentation.
Once you’ve received two pay stubs from your new employer, give them to your loan officer, along with the final pay stub from your previous job. Then, as long as your new job is in the same line of work, you’ll pass this roadblock.
You’ll hit a roadblock if you suddenly lose your job, show unemployment income on bank statements, or you have periods of time without a job. No “one size fits all” exists in situations like these. The best thing to do is ask your loan officer to help find a resolution.
As long as you’re currently employed, there may be a solution. It may involve writing a letter explaining what’s happened with your previous job(s). You’ll also need to be with your current employer for a lengthy period before the lender is comfortable that you’ll have a steady paycheck.
Switching to being self-employed is a roadblock that can take up to two years to overcome. If you’re considering self-employment, postpone it until you complete your home purchase. If you’ve already launched your new venture, create a plan with your loan officer so you’ll know exactly what it will take to qualify.
Property Issue Roadblocks
Once in a while, a mortgage roadblock pops up that’s not even about you, but about the house you’re buying. Properties must meet several criteria before a lender accepts them as security for a loan.
When a house doesn’t meet one or more of them, that’s a significant roadblock. Significant because it’s that you have little to no control over.
The most common property issues include an appraised value less than the purchase price you agreed to. Or, the appraisal uncovered property damage that would impact your ability to inhabit the house or, at the very least, presents costly but necessary repairs.
Don’t despair; even property roadblocks are solvable. Rely on your real estate agent to help negotiate a positive solution with the sellers. In fact, together with your loan officer, your real estate agent can provide help to overcome some challenging mortgage roadblocks.
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