April 15th, 2009

By Andre Plessis
8 Ways To Destroy Your Chances of Getting a Your Mortgage Approval


Here are the important dos and donts before you refinance or get a mortgage to purchase a home. Follow these simple rules and you will ensure you can be approved for a mortgage. If you fail to follow these 8 golden rules and you will destroy your chances to be approved for a home loan.

Because mortgage rates are at an all time low and the government is developing programs like Making Home Affordable doesn't mean that it is easy to get a home loan.

For all that Fannie Mae and Freddie Mac are doing to help more homeowners qualify, and for all that the Federal Reserve is doing to help hold mortgage rates at sustainable levels, when it comes to getting a loan through underwriting and to the closing table, homeowners have to make sure they are doing everything to be successful at being approved for a home loan.

Ironically, it's not the "approval" that's proving to be the tough part for mortgage applicants. It's keeping the mortgage approval.

Because the U.S government's various mortgage market interventions has brought on  mortgage rates AT HISTORIC LOW LEVEL to an industry that's been laying off staff since 2005, lenders can't handle the high volume of purchase and refinance.

Because of the backlog, getting a mortgage application from start to finish is taking some banks as long as 60 days. That's more than double the time it took six months ago when 20-day closings were routine.

The challenge here is that a lot can happen in a person's life in 60 days. Much more than in 20 days.

Mortgage approvals are fragile, living things and nothing's done until it's done. Keeping that in mind, here are 8 things you should absolutely not do between the date your home loan goes into underwriting and the date your loan funds.

Ignore these 8 rules at your own peril. Follow these 8 GOLDEN RULES, and you will increase your chances of being approved for a mortgage.

Now, it may be sometimes difficult to follow every rule. For example, if your car lease is expiring and you need a larger vehicle, it doesn't mean you can't buy the car. It simply means that you check with your ADVISOR first just in case the new payments won't "PREVENT" your approval, because it may change your Debt-To-Income ratio.

Renting a car for a short period of time may end-up being a wiser choice and your ADVISOR (NOT SALES PERSON) can help you determine that.

The same goes for accepting cash gifts from family and parents. There's a right way and a wrong way to accept a cash gift and doing it the wrong way may preclude your ability to use the gift as a source of down payment for a home purchase.

Following these 8 rules and you will increase your chances of being approved for a home loan.

One more thing that can also benefit you when it comes to getting approved for a mortgage. Always pay your bills on time, and pay all your taxes.

For those individuals who get a lot of cash as part of their income, or those who are self-employed and are able to claim a lot of deductions, you might want to reconsider claiming as little as possible.

Keep in mind that if you make $100,000 per year and you only claim $50,000, you will only be able to borrow in proportion to your income. Your lender will only allow you to spend about 30% of your income on your monthly mortgage. You may miss the opportunity to buy something you really love, and a bigger home, but because you only claim so much income, you may not be able to buy your dream home.

Keep in mind as well that if you are self-employed and claim a lot of deductions on your income you may never be able to qualify for a home loan, because you show too little income. Thus you will have to keep on renting, AND AS SUCH YOU WILL NEVER BE ABLE TO PURCHASE A HOME AND DEDUCT THE HOME MORTGAGE INTEREST, WHICH IS SUCH A GREAT TAX DEDUCTION.

So on one side you make sure you do not pay a lot of income tax, but on the other side, you do not allow yourself to purchase a home and claim the home mortgage interest and real estate tax deductions. I PERSONALLY LOVE, WHEN APRIL 15th comes in as I get to deduct TENS OF THOUSANDS OF DOLLARS FROM MY INCOME.

So when you get a lot of cash at your job, or when you are self-employed, make sure you carefully weigh your decisions when it comes to claiming little income to the IRS. What you may gain on one side, you may lose it on the other side. And one thing you will never be able to gain and enjoy, if you keep on renting; HOME APPRECIATION and THE WEALTH GENERATED THROUGH REAL ESTATE INVESTING.