If you are home buyer of more modest means who has had a challenging time qualifying for a home loan, you might enjoy reading this article! In today’s lending environment, even being rich does not necessarily mean that qualifying for a loan will be easy. Income is just one of many factors needed. In fact, many successful people have a harder time qualifying for a loan than the average person.
Here are the top 4 reasons why rich people can’t qualify for a home loan:
- Not Enough Documented Income
Business owners have the luxury of managing how much income they pay themselves. It is perfectly legal not to pay yourself and keep the money in your company in order to avoid paying taxes on that money. This is a great way to save on taxes, but it can be a detriment when it comes time to qualifying for a mortgage. Lenders qualify home buyers based on their adjusted gross income, i.e. income one pays taxes on.
- Lack of Credit
To qualify for a loan, one must have a history of credit established. On average, you need a 2-year history showing 3 active accounts, which includes credit cards, student loans, car loans, to name a few. A lender or investor wants to see that you have the ability to borrow money and pay it back on time. Rich people don’t always have car loans, student loans, or have a need for multiple credit cards—they may not even have a credit card. Not having a credit history can be as limiting as having a bad credit history, and sometimes it’s even more limiting!
- Bad Credit
Rich people can afford to pay less attention to their credit than the average person. Paying a bill late is not necessarily considered a big deal in the eyes of someone making a ton of cash, yet too many late payments or collection accounts reported on one’s credit report is damaging regardless of how much money you make!
- Too Much Debt
Rich people oftentimes are not afraid of taking on debt. High car payments, other mortgages and high credit card debt ads up quickly. If you’re the successful one in the family, you may have co-signed for a car or student loan for one or multiple family members. Co-signing is a very nice thing to do for someone, but it can bite you in the butt when it’s time for you to qualify for a new home loan.
Regardless of how much money you make, keep your credit clean, pay all bills on time, manage your debt, and use your credit frequently. It pays to have excellent credit.