Tired of hearing mortgage lenders say "No?" It's a new era in mortgage lending, one that withholds mortgage loans from all but the most organized and qualified applicants.

In the '80s, rock band Van Halen had you singing that famous question, "Why can't this be love?" Today's question, which is yet to be harmonized with guitars and keyboards, is "Why can't I get my mortgage approved?"

Surprise, surprise

Since mortgage rates fell suddenly in early-January, the pace of mortgage applications has shown signs of strengthening. Unfortunately, that strengthening hasn't exactly translated into an increase in the number of loans being funded.

You would think that mortgage lenders would be happy to take on the extra business, given that they're generally struggling to be profitable. But prospective mortgage borrowers, even those with stable income and solid home equity, aren't exactly feeling welcome. That's because today's mortgage lenders are operating under a cloud of suspicion-they're terrified that every applicant is a credit risk in disguise.

Mortgage applications 101

In this lending environment, no loan is a slam-dunk. You can, however, improve your chances of success by understanding your own qualifications and being ready to provide any requested documentation. Here's a look at what qualifications make you creditworthy:

Stable job history with sufficient income to service all of your debt. Sufficient income often means at least 2.3 to 2.5 times your monthly debt payments.

Big down payment or sizeable home equity balance. No-down payment loans aren't an option anymore. The closest thing is an FHA mortgage that requires 3.5 percent down. Otherwise, expect to chip in 10 to 20 percent, either in cash or in home equity.

Strong credit rating. You'll need a FICO score upwards of 700 to qualify for advertised mortgage rates. A slightly lower number may still win you an approval, but the interest rate will be higher.

Solid paper trail. Don't fudge anything on your mortgage applications. You'll be asked to document your identity and all data pertaining to your income, debt, and assets.

Assuming you have the qualifications, your level of organization is what will make or break your mortgage approval. Expect your lender to pick through every number on your application, and be ready to provide supporting documentation. You can expedite this process by gathering your essential paperwork before submitting the application, including:

  • Three years' of tax returns
  • Pay stubs for the current year
  • Recent utility bills (to verify your address)
  • Three months' of bank statements
  • Statements for all credit accounts and loans
  • Documentation of divorce and/or child support benefits or obligations
  • Social Security card

If you can't get a mortgage approval, it may be because you don't make enough money, you owe too much money, or you can't document your income or assets. The solution? There's only one: wait it out. Maybe a little Van Halen can help you pass the time.

    Published on August 26, 2010