Buying your desired house can be a challenging and daunting 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 hard look at your debit-credit ratio. However, you can make the loan approval and home buying process easier by identifying and overcoming common barriers.
Here are some top home-buying barriers that you need to tackle carefully and smartly when purchasing your dream home.
- Low credit score : Having a high credit score is the biggest advantage to get your home loan application approved. Lenders consider your credit score as a reliable indicator of how likely you will 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 will be your rate of interest. If your score is under minimum, your loan application is likely to get rejected.
- Lack of documentation : Providing third-party documentation in support of the details of your loan application can prove beneficial. You should not only list all your assets but also offer verification of their value. It's necessary that your documented income should be high enough to convince the lender that you can afford the mortgage payment over the span of the home loan. Also, you need to document the source of your closing funds and down payment. Valuable assistance of efficient property appraisers can prove helpful in overcoming documentation barriers when buying your desired house.
- Financial shortcomings : Make sure you can afford a decent down payment when you are shopping a bank loan or any other home loan. Your home loan will be kept on hold until you prove that you can afford down payment funds. Additionally, the amount and type of your debt will be closely verified along with your current income. For instance, according to the FHA requirements, your monthly mortgage payment should not be greater than 31% of your monthly gross income. If it exceeds this percentage of your income then you should either pay off a certain amount of your debt or increase your current income to meet FHA requirements.
- Low home appraisal : Appraisal process and appraisal value play a vital role in the approval of your home loan. The house needs to be appraised by expert appraisers, such as New York property appraiser, to find its accurate market value. Most likely the lenders will send their appraisers to thoroughly inspect the house and assign a maximum loan value. If the selling price is greater than the appraised value by a wide margin, you may need to seek other means to complete the purchase deal. Being a buyer, you have the right to acquire a copy of the appraisal report and challenge the results if they are inappropriate or contradict with yours.
These are the most common barriers when it comes to buying a desired home.