Do Lower Down Payments Equate To Higher Loans Falling Through Before Closing?
Schaumburg, IL (PRWEB) June 26, 2023 -- FOR IMMEDIATE RELEASE:
Contact Person: Ryan Gable
Company Name: StartingPoint Realty
Voice Phone Number: 847-942-6952
Email Address: mailto:[email protected] [[email protected] __title__ null]
Website URL: http://www.startingpointrealty.com
Do Lower Down Payments Equate To Higher Loans Falling Through Before Closing? If You Dig Deeper, Undisclosed Debt Can Be The Main Factor.
A survey was sent to 200 Chicago area mortgage lenders and those that responded revealed the top reasons for canceled home sales. One of the deal breakers may take buyers and sellers by surprise. The survey was conducted by StartingPoint Realty during 2022 and early 2023.
Mortgage denials were a major reason for canceled home sales according to nearly 21% of respondents. One of the primary causes for mortgage denials involved unreported debt that home buyers did not disclose during the mortgage application process.
Unreported debt may include private loans, buy-now-pay later plans, or other recurring payment obligations. Not all of these situations are shown on a credit bureau report.
“I don’t think buyers intend to hide anything,” says Ryan Gable, founder and CEO of StartingPoint Realty. “When we talk about debt, most of us are thinking about credit cards, car payments or student loans. But what about a cell phone purchase with zero-interest payments on your monthly phone bill? You might miss that. Any arrangement where the debt isn’t reported to the credit bureaus, like Affirm, same day loans, or a private loan, is where problems can occur. In the end, the loan officer should catch a lot of this through bank statements, pay stubs and the credit report, but from our research, sometimes things fall through the cracks.”
Lenders say that any monthly payment obligation that facilitates a purchase, or repays a loan, may be counted as a debt, whether it shows on a credit report or not.
Also of note in the survey is the ratio of mortgage denials vs. down payment size. Responding lenders said that borrowers with smaller down payments, ranging from 0% to 5%, had the highest ratio of mortgage denials. Meanwhile, borrowers with down payments of 6% to 20% were more than twice as likely to be approved. But again, here’s the tie in with undisclosed debt.
Gable mentions this shouldn’t be taken out of context. “The down payment itself doesn’t make or break the mortgage approval. However, the down payment affects the math that is used to qualify the applicant, like the loan-to-value ratio and the debt-to-income ratio. If interest rates go up, or there’s another financial issue, such as undisclosed debt, buyers with less cash don’t have much wiggle room.”
Gable says the survey offers important takeaways. “For home buyers, being financially prepared is everything. This is why StartingPoint Realty has provided free home buying seminars and homebuyer education for nearly 20 years. It is absolutely essential to have a mortgage approval in hand before you look at homes – and, to keep that approval updated as interest rates change.”
The best advice he can give first time buyers making low down payments? “Get APPROVED, not just pre-approved. There are lenders out there that will take all your documents, send everything through underwriting, and all that the buyer needs is an appraisal. This is how you combat the stigma attached to low down payment buyers.”
Kevin Koykar from Draper Kramer agrees, ‘The key to minimizing low down payment “fall-throughs” is a comprehensive conditional APPROVAL process which includes close examination of source documents especially paycheck stubs and bank statements. A thorough review of one month’s pay stubs and two months of bank statements may uncover liabilities not typically reported on a credit report e.g. -child support, maintenance, credit union loans, co-signed arrangements, or garnishments.
StartingPoint Realty has been in business since 2004. With locations in Schaumburg and Chicago, StartingPoint Realty’s agents focus on the first time buyer / seller, as well as the downsizing market. These segments require the most hand holding, this is where StartingPoint Realty thrives. In 2021, StartingPoint Realty won Better Business Bureau’s Torch Award for Ethics and Integrity, the first real estate brokerage to win that award in Northern Illinois.
Ryan Gable, StartingPoint Realty, 1 847-942-6952, [email protected]
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