Imagine you’ve applied for a mortgage for your Chicago home purchase. You might feel confident after walking through an online mortgage pre-qualifier. You have good credit, a good employment record, steady income, and a down payment in the bank. According to everything you’ve seen online, there shouldn’t be a hitch. 

Now, imagine the mortgage application is denied. The reason: “insufficient income.” This has become the #1 reason for mortgage denials, according to a report by the Consumer Financial Protection Bureau. 

Before we go further, here’s a bit of perspective. During 2022 and 2023, roughly 9% to 10% of all mortgage applications were denied, including purchase mortgage applications and refinance applications. The good news is, about 90% of mortgages were approved! But the mortgages that were denied listed “insufficient income” more often than any other factor. 

There are a couple of ways to look at “insufficient income.” It could mean that the home you’re trying to purchase is too expensive for your budget, when the mortgage payment, property taxes, homeowners insurance, HOA dues and/or PMI is factored in. It could also mean that the mortgage itself is too expensive! A home that was within your means when mortgage rates were 4%, could be difficult to afford when rates are 7%. 

“Insufficient income” can also mean your debt-to-income ratio doesn’t fit in the lender’s criteria. You might make plenty of money, but if you are carrying a high amount of debt – even well-managed debt – it’s going to reduce the home price you can afford. If you’re in this camp, you’re not alone; high inflation caused more Americans to lean on their credit cards in 2023. Combine the higher debt loads with higher home prices and higher interest rates, and “insufficient income” speaks to a lot of situations. 

Fortunately, there are some things you can do to avoid the “insufficient income” scenario:

  • Pay off credit cards and pay down large loans
  • Look for ways to get a reduced mortgage interest rate, such as a seller buydown
  • Adjust your home buying price range – start with something you can live with, build equity, and “trade up” to a larger/newer home in the future 
  • Add a co-signer, if possible 
  • Wait for mortgage interest rates to come down – you can check the weekly rate averages at 
  • Get pre-approved with a local Chicago area lender, who will explain your best options

Too many Chicago home buyers skip the mortgage pre-approval step! Working with a reliable, local mortgage lender is the best away to avoid surprises down the road. We’ll be happy to refer you to local mortgage experts – just ask! 

StartingPoint Realty – serving the Chicago area since 2004!

StartingPoint Realty proudly serves home buyers and sellers throughout the entire Chicago area. We offer free, first-time home buyer seminars every month! Contact us for your free home buying or home selling consultation!

Ryan Gable Broker/CEO Starting Point Realty
Phone: 847.348.1154

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