Insufficient Income

Your desired mortgage lender may very well reject your loan application if you appear to be stretching yourself too thin financially. Although getting angry is a natural first reaction, you should actually be grateful. Why? Because the lender may be doing you a huge favor by keeping you from buying a home that will prevent you from saving money and achieving other financial goals that may be important to you over time.

If you know that you can afford the home that you have your sights set on, here are some keys to getting your loan approved:

• Be patient: When you have a low income (for example, if you're self-employed and have been deducting everything but the kitchen sink as a business expense), you may need to wait a year or two so that you can demonstrate a higher income.
• Put more money down: If you make a down payment of 25 to 30 percent or more, some mortgage lenders can approve you for their no-income-verification mortgage loan (in rare cases, they'll do so for 20 percent down). Generally speaking, such mortgages come with higher interest rates than conventional loans, so recognize that you will be paying a premium for this type of loan.
• Get a cosigner: If your folks are in good financial shape, they may be able to cosign a loan to help you qualify. A financially solvent sibling, rich aunt, or wealthy pal can do the same.

Be sure to consider the financial and nonfinancial ramifications of having a relative or friend cosign a loan with you. If you default on the loan or make payments late, you'll besmirch not only your credit history but also your cosigner's. At a minimum, have a frank discussion about such issues before you enter into such an arrangement and be sure to write up a loan agreement.