Two Red Flags That Can Put A Stop To Your Mortgage Approval

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Applying for a mortgage is easy. Getting approved, on the other hand, can be challenging. Even a minor mistake on your application can tank your dreams of homeownership faster than Usain Bolt on the Olympic track field. Here are two mistakes lenders may take issue with if they appear on your application and what you can do to avoid them.

Mystery Deposits

One of the hardest tasks to accomplish in the home buying process is drumming up the down payment. Depending on the lender, a buyer may be required to produce anywhere from 3 to 20 percent of the home's purchase price to be approved for the mortgage. Thus, it's not unusual for buyers to receive gifts and donations from friends and family members who want to help them achieve their homeownership dreams.

The problem is more often than not, these gifts seem to appear out of nowhere. In reviewing the applicant's bank statement, the deposit may show up in the person's checking or savings account with no discernible clue as to where the money came from. Since banks are required by law to know the source of all the funds that come into their possession (to thwart financial crimes such as money laundering), having undocumented phantom money in your account can cause the bank to reject the funds and may lead to a loan denial.

It's okay to receive monetary gifts. However, you must obtain proof of how you obtained the money. For instance, you should have anyone who gives you money write a letter stating it was a gift. Keep copies of these letters in a file that you provide to the bank upon request.

Adding in Bonuses and Overtime Pay

Lenders base the amount of your loan on your income. So the higher your income, the bigger the loan you would qualify for. Therefore, it may be tempting to include overtime and bonus pay in your income estimation, but you have to very careful with this. If the amount of this extra money fluctuates wildly from year to year, the bank may not accept it and, instead, base your loan amount on your regular pay.

For instance, if you received a $25,000 bonus last year but only got a $10,000 bonus the year before, the bank may decide the money is too unreliable to use in its mortgage calculations and discard it, causing you to be approved for a lower amount.

Be sure to only add income you can earn on a regular basis, and be prepared to produce proof of that (e.g. prior paycheck stubs or tax statements) to the bank.

For more information about this and other issues that may come up on your mortgage application, contact mortgage services in your area.