3. Racking up a high credit utilization ratio
Surprisingly, the actual amount of debt is not what lenders consider closely. Rather it is the ratio of existing debt to the available credit that matters. For example, if you owe $100 on your credit card and have a $1,000 credit limit, your ratio is 10%.
For optimal results, experts advise keeping your credit utilization ratio below 30%. In other words, if your available credit is $35,000, lenders would like to see a balance of $10,500 or less. A thoughtful strategy is essential, and this useful home budget analysis calculator Opens in new window is a great place to start.
4. Having an erratic employment history
Loan officers like to see a long-term, stable history of employment. An employment history with sudden job changes, periods of unemployment, or an inability to demonstrate stable income can stall the approval process quickly.
Some employers have HR departments equipped with representatives qualified to discuss life events including home affordability, homeowners insurance needs, and home and auto loan incentives.
Did you know that most lenders will allow you to use your 401(k) assets as proof of reserves? If you’ve been maximizing your 401(k) contributions, your growing balance will prove helpful in the lending process, and if you’ve contemplated increasing your contribution rate, this might be an opportune time to do so.
5. Making late payments
Last but not least, lenders like to see a history of responsible debt behavior. What this means: They will not turn a blind eye to a history of late payments or defaults.
Though commonplace among the majority of modern households, a history of late payments can halt your hopes of borrowing money for a new home.
However, it is never too late to start improving your chances of loan approval.