Why wasn’t I approved for a certain loan amount even though I can easily afford it?

August 10, 2011 By Leave a Comment

Large family at home.When considering your application for a mortgage many things are considered such as your income, assets, other debts, and your credit history. Each program has very specific criteria that must be met in order to qualify for the loan. Though you may feel confident that you could fit a certain monthly payment into your budget there are several reasons why you may only qualify for a lower loan amount.

A few of these reasons could include:

  • Some of your income can’t be taken into consideration. For some types of income such as rental income from an investment property, commission, bonus income, or pay from work when you’re self employed you must be able to show that you have been receiving it for a certain period of time (for example, for two years) before it can be considered by many mortgage programs.

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Filed Under: Home Buying, Q & A, Refinancing Tagged With: , , ,

Why was I pre-approved for a higher loan amount than I can likely afford?

August 10, 2011 By Leave a Comment

Mother and Daughter on HammockEach mortgage program has a maximum percentage of your income that can be allocated to debt payments. For example for loans sold to Fannie Mae the limit is 45%, and for FHA loans it is 41% (as of the time of this writing – guidelines can and do change all the time, so check with your mortgage representative about current debt to income limits.) This means that when you add up your mortgage payment and any other debt payments (student loans, car loans, credit card payments, etc.) it must amount to 45% (in the example of a Fannie Mae loan) of your monthly paycheck or less.

There is also a restriction on the amount of your income that your mortgage payment alone can make up, currently 29% for an FHA loan.

If you have an excellent credit profile you might qualify to borrow an amount that would make your mortgage payment the maximum allowed by the guidelines. This may however be more than you can comfortably afford. When you look at your additional expenses which aren’t debt related such as groceries, utilities, child care, entertainment, travel, cell phone, medical and insurance costs, plus what you like to save and contribute to charity it might amount to more than 55% of your monthly income. If you were to take out a mortgage that pushed your debt payments to the 45% max there just wouldn’t be enough money to go around each month. This is why it makes sense to take a look at your budget, not just your mortgage pre-approval when deciding how large a mortgage you can truly afford.
Please note: The content on AFRMortgage.com is for informational purposes only. It is not a substitute for the advice of a mortgage professional, real estate agent, attorney, tax advisor, or other professional.

Additional mortgage questions that may interest you:

Filed Under: Home Buying, Q & A Tagged With: , , , ,

Key Habits of Individuals with the Highest Credit Scores

August 10, 2011 By Leave a Comment

young man and woman standing outsideDid holiday overspending get you in over your head financially? If ongoing debt is causing concern about your credit score, consider this statistic from FICO: Many individuals with the highest credit scores owe more than $8,500 in non-mortgage debt. So, how do they manage that? FICO, or the Fair Isaac Corporation, has been crunching the numbers since 1956 to derive consumer’s credit scores. After 56 years of examining the factors that make for responsible consumers, FICO’s analysts have a good idea of what it takes to maintain a high credit score.

Credit scores range from 300 to 850, and anything over 785 is considered high. Among people possessing credit scores, more than 50 million, or ¼ of the group, are labeled by FICO as “high achievers.” These are the folks who are paying their bills on time and as a result have access to virtually limitless credit. In a recent article, FICO revealed the habits of these “high achievers.”

  • They have an average of 7 credit cards that are linked to a mix of open and closed accounts.
  • Typically, they owe money on a combination of 4 credit cards or loan accounts with balances.
  • Regardless of their credit limit, they maintain a low balance and make their monthly payments on time. 
  • Among the high achieving group, less than 1 percent are past due on any of their accounts. Ninety-six percent of them have never missed a payment. 
  • Most high achievers have credit card accounts that were initiated 25 years ago. Their newest ones are just over 2 years old and the majority of them are 11 years old.  [Read more...]
Filed Under: Home Buying, Living, Q & A Tagged With: , ,

Why do I pay my property taxes and insurance payments to my mortgage company?

August 10, 2011 By Leave a Comment

Mother and daughter in their yard.When your mortgage company collects your property tax and insurance payments along with your monthly mortgage payment this is called “escrow”. The money is deposited into an escrow account and used to pay the real estate property taxes and insurance payments when they come due. The funds in this escrow account can only be used for this purpose.

Your mortgage company has this arrangement because ensuring that the property tax obligations are met and that the home is insured are important to protecting their investment in the property. Property tax and homeowners insurance (and flood, wind and hail, and any other coverage that might apply) are usually paid for in full only once a year, so if a homeowner does not escrow they must come up with the entire amount all at once, rather than splitting it into monthly installments.

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Filed Under: Home Buying, Homeownership, Q & A Tagged With: , , , , ,