DENIED! BUT, BUT, WHY?

You started packing boxes weeks ago when your offer was accepted. Your mortgage guy said, “Your credit score and income are good to go.” He even wrote you a pre-qualification letter to attach to your offer. The new buyer program is fantastic. Now, just two weeks before closing, you receive a letter from the mortgage company informing you that your mortgage was declined because of information discovered while investigating your credit?

WHAT INFORMATION?

Your credit score was in the low 700’s. Your debt to income ratio, both frontend and backend, is good. (Whatever that means). Your income is great and your job is secure. The house appraised for more than the selling price. “What happened? What did they find?”

THE CREDIT MONKEY KNOWS THE SECRET.

First time home buyers, especially those that rent, are unique in that their credit report shows no history of housing expense. Rent payments are not consumer debts. Therefore, they are not reported to the credit bureaus and they are not included on a normal mortgage credit report.

New mortgage applicants already paying a mortgage have a history of housing expense on their credit report because a mortgage is counted as a consumer debt. A mortgage history, including any late payments, is included on your credit report and is already calculated in your credit score.

Given that information, here is the secret that first time mortgage applicants need to know. A mortgage is automatically declined if the applicant has a late housing payment for any month(s) in the year prior to the application. If your rent was late even once in the last year, your mortgage application will be declined. That is why your banker or mortgage originator asked for your last twelve months rent receipts.  He didn’t need to know if you paid your rent.  He wanted to know WHEN you paid your rent.

It doesn’t matter if you made a deal with your landlord to pay late. Nor does it matter that you eventually made the payment with interest and fees. To the mortgage company, even the most compelling story behind the paper doesn’t matter. All that is important to the prospective lender is WHEN you made the payment.

You now know the secret. Make sure to pay your rent on time, if you intend to apply for a mortgage.

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