If you’ve been house-hunting for a while, you know how great it feels to find the home of your dreams. But those dreams can come crashing down if your home loan gets denied.
There are many reasons why home loans get denied, and sometimes you can fix the problem easily. If that doesn’t work, seller-financing may be the perfect solution for you! Keep reading to learn some common reasons your home loan may get denied and what options you may have with seller-financing.
1. Appraisal Issues
When deciding whether to award a loan or not, lenders look at the loan-to-value ratio (LTV) to see if the loan amount matches the value of the home. If the appraisal of the property is much lower than the loan amount, lenders will deny the loan. They do this to protect themselves if anything should happen to the house.
2. Insufficient Funds
To finalize the purchase of a home, you will most likely need money for a down payment and closing costs. Your loan may get denied if you don’t have enough money to cover these.
3. Unusual Bank Activity
Lenders monitor your bank activity when deciding on loans. If an unusually large sum of money shows up one day, your lenders may think you took out another loan to pay for the down payment and closing costs and deny your loan. If the funds were a gift, you could have the gifter write a letter to show your lender.
4. Unbalanced Debt-to-Income Ratio
One of the factors lenders look at is your debt-to-income ratio (DTI). DTI compares how much debt you have to how much money you bring in every month. Your DTI for a mortgage payment should not exceed 28% of your monthly income. If your DTI is too high, your loan may not get approved.
5. No Credit History
Credit history is a significant factor when it comes to loans. Even though you may not have any debt or you have a good income, lenders may deny your loan if you don’t have enough credit history. A good credit history proves to lenders that you are committed to paying your debts.
6. Low Credit Score
Along with your credit history, your overall credit score is considered when you apply for a loan. Financial institutions usually require a minimum credit score to approve a loan. This minimum can range from 500 to 650, depending on the lender.
7. Application Issues
Make sure to fill out your loan application accurately and completely! Your application may not be approved if it contains missing information or errors. Save yourself the headache of having to reapply by getting it right the first time.
8. Employment Status
If you have changed jobs recently or do not have a good employment track record, your lender may deny your loan. Lenders like to see stability in your income, and holding a job for two years or more may help.
9. Payment History
Regardless of whether you currently rent or own your home, late or missing payments do not help your credit history. Lenders may not approve your home loan if they see recurrent late or missing payments.
Seller-Financing May Be the Answer!
If you’ve found your dream home but can’t seem to find a bank willing to give you a loan, seller-financing in Harlingen may be the right fit for you! With seller-financing, you can finance your home without involving banks or other financial institutions.
Seller-financing allows many who can’t get a loan to purchase the property they’ve been hoping for after all! Our caring team at SRC Land strives to help people find the right property, secure financing, and finalize the purchase — all in one place!