Buying the home you want can be a daunting and challenging task, especially for a first-time home buyer. Home loan lenders look for a good credit score and ask for a down payment. They check your income and expense documentation, and take a closer look at your debit-to-credit ratio. However, you can make the loan approval process and home purchase easier by identifying and overcoming common barriers.
These are some of the top barriers to home buying that you need to address carefully and wisely when buying your dream home.
- Low credit score: Having a high credit score is the biggest advantage in getting your home loan application approved. Lenders view your credit score as a reliable indicator of how likely you are to be able to repay your loan. Prominent financial institutions, such as banks, credit unions, and other organizations, need credit scores of 640 or higher. Also, the Federal Housing Administration needs a credit score of 600 or higher. The lower your credit score, the higher your interest rate. If your score is below the minimum, your loan application will likely be rejected.
- Lack of documentation: Providing third-party documentation to support the details of your loan application can be beneficial. You should not only list all of your assets, but also offer verification of their value. Your documented income needs to be high enough to convince the lender that you can afford the mortgage payment during the term of the home loan. Additionally, you must document the source of your closing and down payment funds. The valuable help of efficient property appraisers can be helpful in overcoming documentation barriers when purchasing the desired home.
- Financial deficiencies: Make sure you can afford a decent down payment when shopping for a bank loan or any other home loan. Your home loan will be held on hold until you show that you can pay the funds for the down payment. Also, the amount and type of your debt will be closely checked along with your current income. For example, according to FHA requirements, your monthly mortgage payment must not exceed 31% of your gross monthly income. If you exceed this percentage of your income, then you must pay off a certain amount of your debt or increase your current income to meet FHA requirements.
- Low housing rate: The appraisal process and the appraised value play a vital role in the approval of your home loan. The home must be appraised by expert appraisers, such as the New York Property Appraiser, to find its exact market value. Lenders will most likely send their appraisers to thoroughly inspect the home and assign a maximum loan value. If the sales price is higher than the appraised value by a wide margin, you may need to find other means to complete the purchase agreement. As a buyer, you have the right to purchase a copy of the appraisal report and question the results if they are inappropriate or contradict your own.
These are the most common barriers to buying a desired home.