What Disqualifies You From a Mortgage?

Poor credit history may be a disqualifier.
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A lender can help you to realize your dreams of becoming a homeowner, but while you're thinking about a perfect future, your lender is thinking about the bottom line. Your lender wants to make sure that it will make a return by lending to you -- and if lending officials think they cannot, you may be disqualified. While there are no hard and fast things that disqualify you, some factors related to your finances are likely to disqualify you.

Bad Credit

Your bank wants to know that you'll make good on your loan, so the lender wants to know about your financial past. Lenders will look at your credit score, which is designed to measure your creditworthiness. While there's no absolute cut-off, the lower the score, the more likely you are to be disqualified. You don't need to have perfect credit to qualify, so a few late payments here and there won't necessarily kill the deal; lenders want to see you've been keeping up with payments lately. But major credit problems in the past, such as a loan default, can disqualify you.

No Down Payment

When a bank hands you a six-figure loan, the lender wants to see you are committed to the loan. This means you need to make a down payment on your home. Most lenders will want a down payment of 20 percent but some might accept 10 percent down. Even loans backed by the Federal Housing Administration will usually require a down payment of at least 3.5 percent. If you don't have the cash to put into a home, you're almost certain to be disqualified.

Debt Ratio

Debt won't disqualify you outright -- what your lender wants to know is your debt-to-income ratio. Many mortgages are handled through the Federal National Mortgage Association, referred to as Fannie Mae, and must meet specific ratio tests or they will be disqualified. If your down payment was less than 10 percent, then you need to pass the "28/33" test -- meaning that your monthly mortgage payments, property taxes and housing insurance cannot exceed 28 percent of your monthly gross income, and your total long-term debt cannot exceed 33 percent of your income. If you have made a down payment of 10 percent or more, you will need to pass the slightly less stringent "28/36" test, which allows your long-term debt to increase to 36 percent.


If you've been unfortunate enough to have gone through a bankruptcy early in your life, this may disqualify you from a mortgage -- but not necessarily. According to David Hall of Hall Financial, lenders will likely want your loan to be guaranteed by the Federal Housing Administration if you have experienced a bankruptcy. You will, however be disqualified from an FHA loan if it has been less than two years since your bankruptcy was discharged. An exception to this is if the bankruptcy was caused by extenuating circumstances beyond your control, but even then you will need to wait at least 12 months from the discharge to potentially qualify.

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