Preparing to purchase a first home is an important financial step toward building wealth, but many first-time home buyers may find the path to home ownership to be strewn with unexpected obstacles. While most mortgage applicants are aware of the importance of their overall creditworthiness and FICO score, many may not realize that past financial issues can harm them even if they may not have been actually reported to the credit bureau. If you are a first-time home buyer preparing to apply for a first mortgage, the following information can help you determine if a past financial issue will be a problem and help you take corrective action.
Checking Account Overdrafts
Most Americans have experienced at least one instance of an overdraft situation with their checking account. However, if there is more than an occasional instance of this happening, it can be a big problem when applying for a home mortgage.
Mortgage loan underwriters typically require applicants to provide the two most recent months of banking activity so they can look for overdrafts and other types of behavior that they feel may indicate elevated financial risk. Before applying for a mortgage, applicants should also review their banking history carefully, as well.
If overdrafts or other issues are present, it may be wise to postpone the application until these issues can be resolved and the banking history becomes more positive.
Accounts Closed by the Bank
Closed accounts due to overdrafts, bounced checks, or even inactivity are also potentially serious issues for the home mortgage applicant. Since banks retain these records and the information is also reported to a database of closed accounts shared by the banking industry, this type of negative financial history can affect an applicant's ability to obtain a home mortgage. The good news is that most banks will work with closed account holders and allow them to bring the account current and reopen it.
Scanty Deposit Histories
Another financial history issue that can make it difficult to obtain a mortgage is if the applicant's banking history shows scanty deposit history. Mortgage lenders are required to look for financial behavior that can seem risky, and scanty banking history is sure to put them on high alert.
Applicants who have short or scanty banking histories to offer should consider making more regular deposits into their account, while also showing good money management skills through timely bill payments and withdrawals before moving ahead with an application for a home mortgage.
To learn more about the home mortgage application process and discuss any potential issues, prospective first-time home buyers are encouraged to meet with a mortgage broker in their area well before beginning the application process.