If you are like most home buyers, you will need a loan to secure the purchase of your home. If you are like a lot of people, you may have already applied for a loan and been denied. Often you are denied without a clear-cut reason as to why and you have to try to decipher the legal and financial jargon to understand why. If you have never applied for a loan, it may seem daunting to make the attempt. Whatever your specific situation may be, we are here to help.
While we are not lawyers or certified financial advisors, Danielle Lazier + Associates makes it a point to educate our clients and guide them through the home loan approval process so that it is less stressful and more successful. Because of our deep connections and excellent reputation within the San Francisco real estate community, we are networked with skilled loan officers who are ready to help our clients into their dream homes. Our clients are often surprised at just how much money lenders are willing to give them.
Let’s start with reasons you may be denied a loan.
Reasons You May Not Be Approved
Income and Employment
Every lender worth considering is going to require that you have a steady income. If you are unemployed and have no income, then you aren’t getting that loan, at least in the vast majority of cases.
There are calculations that are done in order to determine if you would be able to pay off the requested loan amount in conjunction with your current bills and other debts. Larger loans often require that you have a minimum income level before being able to be approved.
Other lenders will require that you have full-time employment before they will even consider lending to you, regardless of the amount of pay. Working part-time or being self-employed can definitely impact this.
This is probably the biggest thing that lenders look at when considering your eligibility for a loan. If your credit score is poor or bad, or if you have a history of making late payments on your loans or credit cards, then you are likely to get dinged negatively when applying for your loan. This is because missing payments or having a low credit score makes you a statistically higher risk, as far as repaying the loan is concerned.
Now, it is good to know that if your score is lower than you would like, you have options. There are loans available specifically for those who have lower credit scores in order to help you raise your score and get more substantial loans in the future.
Debts and Assets
When you apply for your loan you are going to be asked to provide a list of all of your expenses, your debts, and even your assets. Loan officers use this information to find your debt to income ratio, or your DTI. More assets and income raise this, whereas expenses and debts lower it.
Ways to Increase Loan Eligibility
Continue reading to see what it is you have to do to be more likely to qualify for a home loan.
Pay Off Your Current Loans
Personal loans or credit cards that you already have can definitely be a factor. It is definitely a red flag if you are behind on your credit card payments.
The best thing for you to do is to pay those loans off as quickly as possible. Clear out those loans and close the accounts. Once that is done, make sure you have documentation proving that you have paid it off. This can be a loan closure or a “no-due” certificate. Keep your documentation handy and make sure that it gets updated in your credit score.
Count ALL Your Earnings
Sometimes people get what is called “variable pay.” These are bonuses and perks that you may receive while working. You want to make absolutely sure that you track these as well, as they are additional income that may not be tracked otherwise. This can potentially help you quite a bit when it comes time for potential lenders to consider your eligibility.
Can You Earn Rental Income?
Do you own a property that is not being used and that you have no plans for in the immediate future? If so, you might consider leasing it out. The funds that you earn will be considered an additional source of income, raising your loan value and increasing loan eligibility.
Home Loan Tenure
Increasing the tenure of your current home loan can also help to increase loan eligibility. It is important to keep in mind, however, that the vast majority of banks are unable to increase this tenure beyond 25 years.
Your Spouse’s Earnings Are Important Too
If you are married and your spouse is working as well, you will likely apply jointly for your new loan. When it comes to loans, two incomes are better than one.
One of the best things that you can do before applying for a loan is to check on your credit score by getting a credit report. Once you get it, study it. Look for any errors that may be on it and take the steps to clear them up now.
It is also important that you don’t go to a bunch of different lenders hoping to get the loan as quickly as possible. You do want to shop around, but you want to see what different benefits different lenders provide to their customers.
If your credit score and report are both good then you are more likely to get competitive loan rates. You might even talk to customers that have gotten loans from the same lenders in order to see what they think about them. You want to choose the lender that is going to give you the most competitive rates in conjunction with good service and an easy payment schedule.
Step Up Loans
These loans are a great way to raise your eligibility. They are typically used in professions where you may initially struggle but show potential for much higher returns as you establish yourself. A couple examples of professionals that use step up loans are doctors or chartered accountants. Some banks offer these loans products at a lower payment rate in the beginning years of the loan. The monthly payment is gradually increased as you begin repaying the loan.
The Final Word
We recommend that you begin taking steps to improve your home loan eligibility now. As we said, we have access to San Francisco’s best loan officers. It’s likely that your loan process will be smooth, and we also know that there are many loan products that can help buyers with out of the ordinary financial situations get into a home. We look forward to learning more about you and matching you with the best loan officer for your unique situation and financial goals.
ABOUT DANIELLE LAZIER + ASSOCIATES
In 2018, Danielle Lazier + Associates sold over $104,000,000 in SF Bay Area residential real estate selling more homes than any other SF Realtor (per MLS). We specialize in listing marketing and home buyer representation. We work with a diverse clientele in terms of budget, property type, and location, but one thing remains consistent: our clients have a clear goal to maximize their San Francisco real estate investment and want us to help them because we deliver both results and an enjoyable experience.
Are you buying or selling a home in San Francisco? Reach out to us for a consultation!