January 24th, 2014 4:26 PM by Robin Bain
Most of our articles are addressed to those who are ready to or want to get a mortgage. Up until 2014, you might have even thought that you and your spouse were ready to get a mortgage. However, due to the newly implemented mortgage rules, the ideal borrower profile has become even more specific.
Here are some reasons why you’re not ready to pursue a mortgage:
If you don’t know how long you will stay in the house, you’re not ready for a mortgage. This is due to the fact that you will likely lose money if you stay in the house for less than five years. Mortgages have extra costs that aren’t well-known to the public such as closing costs, which can easily be anywhere from two to five percent of the total loan amount. This is money that you won’t get back, so you shouldn’t pursue a loan unless this is a loss you can afford to take.
If you only have enough money saved up for a down payment, whether that’s 3.5% of the loan amount or 20% of the loan amount, you’re not ready to get a mortgage. There are many additional costs that are associated with buying a house such as closing costs, moving expenses and the home inspection. Additionally, some lenders want to see a two or three month cash reserve to ensure that you can still make mortgage payments in case of an emergency.
If you have a hard time paying rent every month, you’re not in a good place to take on a mortgage. Mortgages are much more unforgiveable in terms of damaging your credit score and having long-lasting repercussions. If there’s a specific reason why you’re having a hard time paying rent every month such as low income, medical bills or that you’re self-employed, you’re going to have a hard time getting lenders to take a second look at you. If you’re in this situation, you need to take a few months to make sure that you can show reasonable proof of paying your rent on time. Once you have this paper proof, lenders will have a much easier time giving you the loan you need.
Now, in 2014, there are more rules that make you no longer eligible to get a mortgage. As part of the new Qualified Mortgage rules, lenders are no longer giving out loans to borrowers who can repay the full amount in the allotted time. Here are the new rules that make you ineligible to get a mortgage in 2014:
If your debt-to-income ratio exceeds 43%, you won’t be eligible for a mortgage. This means that your student loans, car loans, business loans are too high for lenders to assume that you will be able to make your monthly mortgage payments each month.
If your credit score is below 620, you’re not ready for a mortgage. Most lenders will turn you away in a heartbeat and will tell you to work on your score before coming back. If your credit score is lower than 620, you are showing your lender that you have a history of not being able to make reasonable payments on time and struggle with money management.
If you have less than two years of income proof, don’t expect to get a mortgage anytime soon. You are considered a “risk” in the eyes of lenders if you don’t have proof of a regular income for the past two years because you might not be able to make your mortgage payments each month. This especially affects entrepreneurs, who usually see ebbs and flows in income each month.-------------------------------------------------------Dana Bain