• Fixes for Common Mortgage Problems, I: Insufficient Income



Got your sights on a new home you know you can afford, but your lender doesn't think so? The lender may be right. If that's not the case, however, there are steps you can take to make your next mortgage application successful.

Don't despair. It's not the end of the world, or even of your quest for your dream home. There are fixes and workarounds for every roadblock standing between you and your mortgage. Some may require time and patience, but all will work.

The first roadblock we address is insufficient income. This one's pretty straightforward: the lender believes you don't make enough to qualify for a mortgage in the amount you seek. This could be a blessing in disguise if the rejection keeps you from buying more home than you can afford. A mortgage payment that eats into your ability to save for other goals or further reduce your debt will hurt you more than help you in the long run. If that's the case, you might want to review your finances to see how much home you can really afford.

But if you know you can afford the home you want but get turned down for the mortgage anyway, there are steps you can take to change the result the next time you apply:

Be patient. If your income as stated on things like your tax return really is low (for instance, you're self-employed and deduct just about everything you do as a business expense), you may simply need to wait a year or two until you can demonstrate a higher income on your tax forms.

Up your down payment. Did you put up 20 percent as a down payment? That's the standard amount most lenders expect borrowers to contribute to the cost of the home. If you didn't, well, that probably explains the result you got. If you did, and you can afford to put down 25 or 30 percent of the cost, try that. Your lender might look more favorably on your application.

Bring a co-signer on board. Your parents helped you get on your way, and maybe they can help you again here if their finances are in good shape. Or maybe you have a rich uncle or aunt, or a well-off sibling, or even a good friend who's done well enough to lend his or her name to your application. But be careful. Asking a friend or relative to co-sign your mortgage puts their assets and good name on the line, and if you fall behind or default on the loan, their credit takes a hit too. At the very least, you owe your would-be cosigner a frank discussion up front about your own finances and ability to pay back the loan before you draw up a loan agreement with the co-signer. And even if the co-signer isn't putting up any of his or her own money, you should put your agreement down in writing.