As you have likely noted, the price of homes has been skyrocketing during this pandemic. The more expensive homes become, the larger the home loans prospective buyers will require; the larger the loan requested, the more prerequisites are imposed by lenders. The net result of this reality is essentially a system of ever-higher-requirements when it comes to obtaining a loan. This article will briefly discuss the reasons your loan application could be denied.
Your would-be lender will look at your credit score before anything else, consider it a litmus test for whether you are worth investigating as a loan candidate. If your credit score is under 500, you’re not getting a loan. The bank's reason is that if you are not capable of keeping your financial house in order with smaller items, then you’re not going to keep your monetary affairs in order when it comes to a home loan. At the end of the day, banks are interested in protecting their investments; someone with a shoddy track record is not going to inspire a lot of confidence.
If your credit score is between 500 and 740, you might be able to get a loan; but the terms of that loan may be oppressive. Top-tier interest rates are reserved for people with top-tier credit scores (740+); less favorable interest rates are given to people who have done a decent, but not excellent, job of managing their money. It may not seem like much when you’re signing the loan agreement, but a single percentage point of interest translates into thousands of dollars over the life of the loan.
Next, the bank won't deal with you if you do not have enough money for a reasonable down payment tucked away. Conventional wisdom says a down payment should be 20% of the home’s total value, though the average down payment as of January 2020 was 11.4%; regardless of the percentage, that represents a lot of moolah in this housing market. If you cannot put together a reasonable down payment, the bank is not going to deal with you. As should be readily apparent, the red-hot housing market has priced out many would-be home buyers.
Finally, banks prefer applicants with a steady job history. Out of all the things the banks look at, the logic behind this one is the most questionable considering modern realities. Once upon a time, you could tell a lot about a person who jumped from job-to-job; in previous generations that was a good sign that someone did not have their lives in order. Of course, it’s 2021 and the world has been hectic for some time. The banks use job stability as a proxy for financial stability but ignore that the modern person’s hustle requires that the modern person be flexible and capable of seizing opportunity when it presents itself. Notwithstanding the modern reality, banks place a lot of emphasis on an applicant’s job history.
At the Chernov Team we understand that knowledge is power, and knowledge of how to maximize your odds of getting a favorable loan is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.