When you’re ready to buy a home in Fairfax, you need to make sure you can qualify for a mortgage. Unless you have the cash to buy without a lender, this will likely be the first step you will take.
If you skip the pre-approval step, you could end up wasting a ton of time. Plus, you might fall in love with the perfect home only to find out you can’t afford it.
If you’re thinking about buying a home soon, make sure you get pre-approved for a mortgage. It’s also important to understand some of the common reasons you might not qualify for a mortgage.
5 Reasons You Might Not Qualify for a Mortgage
1. Poor Credit
The number one reason you might not qualify for a mortgage is your credit score. Typically, lenders want to see at least a 620-credit score. However, there are some programs for lower credit scores, especially if you have a higher down payment.
FHA home loans are some of the best for those with a lower credit score. These types of loans offer some options with lower down payments, as well.
Before you start the pre-approval process, take the time to improve your credit score. A few months working on improving your credit score can make a pretty big difference. Better credit ratings also mean lower interest rates.
2. High Debt-to-Income Ratio
Another common factor keeping you from qualifying for a mortgage is a high debt-to-income ratio. If you have a ton of debt and many monthly payments, this could lead to a high DTI ratio, which might keep you from qualifying for a mortgage.
This might be an issue if you have large student loans. If you have a high DTI ratio, consider selling something you have a monthly payment on or paying something off before trying to buy a house.
A debt-to-income ratio of above 36% will make it hard to get approved for a mortgage. Some programs do go up to about 43%, but those are not easy to find.
3. Small Down Payment
You might have good credit and a good DTI ratio, but you don’t have much money saved. This could keep you from qualifying for a mortgage.
If you’re a first-time homebuyer, there are some programs that might help with your down payment. You can also remedy this issue by waiting and saving up some money before trying to buy a house.
It’s best to save 20% for your down payment to avoid paying private mortgage insurance. However, you can get approved for a mortgage with a down payment of as little as 3% and even for zero down, especially if you qualify for a VA loan.
4. Employment History is Short
Maybe you just started a new job and you were unemployed for a while between jobs. If you don’t have a very long employment history, it could make it harder to qualify for a mortgage.
However, it’s a myth that you need two years of work history to get a mortgage. This is preferred by most lenders, but it’s not always necessary.
Some of the biggest red flags for employment include:
- Gaps in employment
- Changing industries/careers
- Variation in hours works
- Short employment history
If you haven’t been at the job very long, it might be a good idea to wait to buy a house. However, if you were at your previous job for years and there’s no gap in your employment history, you should be in good shape.
5. Unverifiable Income Sources
Another hurdle to qualifying for a mortgage is unverifiable income sources. If you are self-employed, it can be harder to get approved for a mortgage than those working a job with a W-2.
Anytime your sources of income are confusing, unreliable, or complex, it can make the process harder. It’s best to speak with a mortgage expert if you think you might not qualify because of your income.
Getting pre-approved for a mortgage is an important first step when you want to buy a house in Northern Virginia. You want to make sure you’re going to be able to afford any home you look at.
Take the time to look at your credit, your debt-to-income ratio, and consider the other factors above. Sometimes, it can be helpful to wait six months while you improve your credit, save money for a down payment, and gain more employment history.
However, if you’re in a good financial place to buy a home now, you might want to speak to a real estate agent. Your agent can help guide you through the steps of the process to owning your next home.