Although you might have good credit and consistent income, you may be using funding products that can actually harm your chances of getting a mortgage loan approval for that piece of Downtown San Diego real estate you’ve had your eye on. Many consumers are surprised to discover that certain loans can make it harder for them to get new homes, even if they have secured these funding products many years before submitting their mortgage loan applications. Understanding this, you may want to make a thorough review of your credit report and take steps to resolve the following debts before pursuing a home loan.
Student loans are often long-term obligations with fairly manageable payments. Unfortunately, most students have to work with multiple lenders in order to cover the full costs of higher education. While each loan payment is nominal on its own, these loans can have a cumulative impact on the borrower’s ability to make timely loan payments. Given the lengthy duration of mortgage loans, lenders must consider all forms of student loan debt when reviewing and approving loan applications, even if the related payments have been deferred.
When seeking student loans, it is best to avoid private lenders. Private lending institutions charge far higher interest rates and fees and thus, they have a much greater impact on long-term debt-to-income ratios than government subsidized loans. Consolidating private loans for lower interest rates and working aggressively to pay these debts down is another strategy that future home loan applicants can use to limit the impact that this debt has on their borrowing power.
Timing is everything when it comes to buying a new car, especially for consumers who want to apply for home loans in the near future. Car loans can have a significant impact on credit scores. If these loans are managed properly and paid off well in advance of a mortgage loan application, they can boost the borrower’s purchasing power. If payments are missed or remitted late, however, credit scores will drop. Seeking a car loan just before you seek funding for a home can also cause a temporary drop in your credit score, due to the credit inquiries that financing companies make.
Slightly used and new cars are considered to be among some of the biggest purchases that consumers can make. Car loans often require several years of commitment and they entail the need to pay for full automobile insurance coverage and other necessary expenses. These are all factors that erode the prospective homebuyer’s income.
Factors That Erode Income
When processing loan applications, lenders are most concerned with the borrower’s debt-to-income ratio. This determines the amount of money that he or she will have available for making home loan payments. Even if your income is fairly high, if a large portion of this money is already earmarked for student loan and car loan payments, there may not be sufficient funds on hand for repaying the mortgage company. According to the latest qualification rules for home loans, borrowers’ cumulative debts cannot exceed 43% of their regular income.
Not only can factors that erode income impact whether or not you are able to get a loan, but they can also affect your loan approval amount. A car loan of approximately $450 per month could lower your overall borrowing power by as much as $100k. This will in turn limit the number of home options that you are qualified to pursue.
If you’re thinking about buying real estate in Downtown San Diego and could use a helping hand navigating the process, call 92101 Urban Living at (619) 649-0368. We specialize in Downtown San Diego property, including penthouses, condos, and lofts in Little Italy, Marina, East Village, Cortez Hill, Core, Columbia, and Gaslamp. ')}