Can You Get a Mortgage?

Lenders will eyeball more than just your credit score to make a decision on your mortgage application.

Remember the old days, when you were eager to finish school? You looked forward to graduation day, because that's when real life would begin. You've probably learned by now that it's much harder to make the grade in real life than it was at school.  If you've applied for a home loan recently, you've probably also learned that it was a lot simpler to ace a test than ace a mortgage application.

Deals aren't enough

The real estate deals are out there. And after checking rates and running your finances through a mortgage calculator, you know you can afford to buy a home. The only question left to answer is, can you get a mortgage?

Most of the time the answer is yes. It may not, however, be the mortgage you want or the mortgage you can afford. Lenders have a way of imposing stipulations you can't meet, or dragging their feet for so long that your deal falls through. While this seems wholly unfair, it makes more sense when you understand the mindset of today's lender.

Not all loans are good loans

For several years, lenders acted on the belief that all loans supported by real estate were good loans, because if the homeowner couldn't pay, the ever-increasing property value would pick up the tab through a mortgage refinance. Unfortunately, that belief turned out to be baseless.  Lenders are now feeling insecure about their own ability to make good underwriting decisions. That's why they're nervous when purchase mortgages or mortgage refinances have any hint of default risk.

In a perfect world, your mortgage application and supporting documentation would convince the lender that you have:

• A good credit score
• Ample cash for a down payment on a purchase mortgage, or ample equity for a mortgage refinance
• A stable job history
• A minimal amount of revolving debt
• Sufficient income to service your mortgage payments

In addition, the appraised property value of the mortgaged property must come in as expected. Ideally, the property value would be higher than the negotiated selling price-a scenario which provides you with instant home equity.

You can address some of the lender's primary concerns early on by reviewing your credit report and credit score. Make sure the information is accurate. If you have large outstanding balances, take measures to reduce them. Don't get new credit cards or close old ones, because either action could put downward pressure on your credit score.  

Other issues can be overcome simply by shopping around. What's a deal-breaker to one lender might be overlooked by another. Therein lies the beauty of the mortgage application: it's a test you can take more than once.