If you need a loan, especially a mortgage, we all know that your application will be viewed more favorably if you can demonstrate a good savings track record, and show that you have great credit.
But did you also know that, just like there are tangible and intangible ways you can impress a banker, there are some things you can do, or some elements of your loan application, that can send up a red flag.
Negative items in your credit report are obvious causes for concern, but so are other things you might not expect.
How Have You Handled Your Finances With Family, Friends and Business Associates?
If you have past due child support payments, if you’ve co-signed on anyone else’s loans, if you have overdue taxes, or if you are currently being sued for any reason, you’ll have some explaining to do.
All these areas show the bank how you’ve handled your finances with family, friends, business associates and the government.
If you’ve had problems with the state and the feds, or with the people you know, trust and may even claim to love (i.e. your children, etc.) – and got into financial battles or skipped payments to them – why should your neighborhood bankers think it will be different with them?
Lenders Want Proof – Not Just Your Word
Outside of delinquent financial obligations, there are other red flags lenders don’t like.
An inability to provide standard documentation will likely raise some eyebrows. Let’s say you claim to have paid your rent on time for the past year.
You don’t live in a big apartment complex, rather you live in a place that you rent from your aunt.
You might think a simple letter from that aunt attesting to your timely payment record is enough.
However, the bank is likely to ask for more solid proof – in the form of the canceled checks you wrote for that rent.
What they’ll be looking at primarily is the date on your checks, to see if you really made on-time payments.
If you say you “can’t find” your old checks or are missing a few, chances are that will raise doubts about the veracity of your payment history and you’ll be dinged on the interest rate.
Likewise, unexplained gaps or frequent changes in your recent employment picture can be a cause for concern to some lenders.
Excerpted from Your First Home: The Smart Way to Get It and Keep It