Why can't I get a mortgage for what I'm paying for rent?

If I'm paying $2,000 in rent, why shouldn't I be approved for a mortgage that costs me the same amount per month?

When someone who has been faithfully paying rent at a certain amount per month is either not approved for a mortgage at all, or for an amount that is less than they currently spend per month, it often makes them wonder why.

Lenders and landlords alike consider some of the same criteria, but if you’re being considered for a mortgage, they’re going to not only consider more things, they’re going to be looking more closely at them. Here are some of the things that may impact how much (if any) money a lender will approve you to spend per month in terms of a mortgage payment.

Credit history. As mentioned above, landlords may or may not look at your credit history. But they may just be looking to see if it’s “bad” or not, as opposed to your overall credit profile. Lenders will look at your credit history much more closely.

Your job history. A landlord most likely wants to know that you’re employed, and may even verify that you are with your employer, but a mortgage lender wants to see that you’ve been employed for a certain period of time in the same field, and ideally with the same employer.

How much cash you have. While there are certainly loans that require a low down payment, most likely you’ll need some money to put toward a down payment. How much down payment you have will affect how much they feel comfortable lending you. Plus, they often like to see that you have some money left after making the purchase, so you have some reserves in your account. Remember, there are often additional costs when you own a home, like maintenance or higher utility bills.

How much other debt you have to pay each month. Lenders look at what’s called your “Debt-to-Income Ratio” in order to assess how much of your income goes toward paying debt each month. While there’s certainly exceptions, the percentages many in the industry claim is “ideal” tend to be 28% of your total gross monthly income goes toward housing, and 35% of your gross monthly income is allotted to your total debt payments.

So if you’re pre-approved for a mortgage, but it’s for less than you pay per month in rent, or aren’t approved at all even though you currently pay a certain amount of rent without an issue, just know that there are more factors a lender considers.

But even if you’re initially not approved at all, or for a lower amount than you think you can spend per month, ask the lender what you need to do in order to be approved for the monthly payment you feel you can comfortably afford. They’ll be able to give you insight into the areas they need to see improvement.

Don’t give up and feel like it’s a forever thing. In fact, we have local lenders that can provide you with informaiton and tools that will get you to a position of being approved for a mortgage. Let's talk.