For those looking to buy a house, today’s market may feel reminiscent of the opening lines in a Tale of Two Cities. It was the best of times and it was the worst of times. The good news is that for all the pessimism in today’s market, there is still a lot to look forward too. What’s important is being able to capitalize on the opportunities that are still present.
Despite uncertainty about the Federal Reserve’s future direction, interest rates are still near historic lows. This represents an excellent opportunity to purchase a new home and save thousands of dollars in interest payments in the process. But in order to take advantage of today’s low rates, you need to make sure that your application for a home loan has a reasonably good chance of being approved. What follows are some common reasons that a new application for a home loan gets rejected.
1. Switching Careers Too Often
It is common for those in the workforce to swap between careers multiple times during their career, especially in the United States. This is less common in many Asian countries such as Japan where there is a greater emphasis placed on loyalty to the first company that hires you. However, creditors want to see that your employment is stable. Switching careers too many times will often lead creditors to think that your employment is unstable if you move between jobs with different salary levels.
2. Failing to Document Income Sources
This may seem like common sense, but you might be surprised how many people every year are denied loans on the basis that they are unable to verify the income that they generate. Let’s suppose for a moment that you make $500,000 each year betting on horse races. Even if your bank account balance could support the truth of this hypothetical situation, it wouldn’t mean much to a bank if you didn’t have proper documents to show this. When you apply for a home loan, you’re most likely going to need pay stubs, W2′s, tax returns, bank statements and documents verifying your employment.
3. Taking Out New Lines of Credit Before Requesting a Loan
There is a persistent belief among the general public that credit cards are somehow evil, when this is really the farthest thing from the truth. Credit cards are a powerful financial tool when they are understood properly — i.e., as a plastic representation of existing assets. On the other hand, getting a new credit card before applying for a home loan can be a huge mistake. This is because taking out a new credit card temporarily lowers your credit score.
Buying a house can be stressful enough, as it is often one of the most detailed processes that a person can go through. There is no need to add rejection on top of the process. While some things are out of our hands, avoiding the common mistakes listed above will do much to help ensure that you stand a decent chance of getting your next home loan approved.
