DENIED! BUT, BUT, WHY?

You startedpacking boxes the day the Seller accepted your offer to buy your first home. 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 you qualified for is fantastic. Now, just two weeks before closing, you get a telephone call from the mortgage company informing you that your mortgage was declined. The mortgage processor discovered new information while investigating your credit.

WHAT INFORMATION?

Your credit score was in the mid 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 are unique in that their credit report shows no history of housing expense. Rent payments are not consumer debts unless there are extraordinary circumstances. 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 considered 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 all first time mortgage applicants need to know. A mortgage is automatically declined if the applicant has a late housing payment for any month(s) during the year prior to your application. That means, 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 really 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 your mortgage company, the compelling story behind your rent reciept is unimportant. All that matters to your prospective lender is WHEN you made the payment.

Now you know the mortgage secret that no one talks about. If you intend to apply for a mortgage to purchase your first home during the next year, be sure to pay your rent on time. You don’t get declined.

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