After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
How to Spot a Risky Kansas City Home Loan Applicant
If you are a mortgage lender, you already know each borrower’s background is unique. For lenders, it’s important to evaluate your clients’ histories and determine whether they are a risky endeavor or a solid investment. There are a few red flags that can tell you if a Kansas City home loan applicant is an unattractive candidate for financing.
Low Credit Score
If the borrower’s credit score is low, it will be hard to trust that they will pay back the entire loan on time. Since your credit score is essentially a snapshot of your past ability to repay debt and handle money, it’s used as a good indicator of how a borrower will behave in the future. Typically, lenders require a credit score of 640 or above in order to qualify borrowers for a Kansas City home loan.
Self-Employment and New Employment
Loan applicants who are self-employed are typically riskier than those who are employed by a company since their income is not always stable. This instability makes it hard to determine if you will capable of making your mortgage payments in the future. Applicants with jobs can provide lenders with pay stubs, and these items can verify the information through their employer. In the absence of these employment records, loan officers rely on the two most recent years of income tax returns.
Additionally, it is risky to give borrowers a mortgage unless they have been at their current job for 2 years or longer. Recent high rates of unemployment have made lenders fear that their borrowers will not be able to make their mortgage payments.
Individuals who are trying to buy a home should not be making large purchases before or after applying for a Kansas City home loan. Any new credit inquiries will have to be documented and explained. These purchases may hinder their ability to repay their mortgage.