You want to buy a house, but you're not sure if you qualify for a mortgage loan. This is a normal concern, especially since mortgage lending standards have become tighter in recent years. But the fact that it's harder to get a mortgage doesn't mean you shouldn't try. If you're determined to buy your own place, it can happen. However, it's important that you recognize the biggest threats to homeownership. This way, you can plan accordingly and realize your goal sooner.
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1. Bad Credit
Mortgage lenders will check your credit report before approving your mortgage loan application. If you have bad credit, this can prevent an approval. Bad credit can include a history of paying your bills late, collection accounts, judgments or other problems like foreclosure or bankruptcy. You need a minimum 680 credit score to get a conventional mortgage. Pay your bills on time and pay off debt.
2. No Credit History
Believe it or not, but having no credit history can be just as bad as having bad credit. Mortgage lenders have to assess your payment habits, and if you've never owed anyone, they can't do this. To build a credit history, look into secured credit cards. These are easier to get when you don't have a credit history. Make sure you pay your bills on time every month and don't carry a lot of debt. In about 12 to 24 months, you might raise your score enough to qualify for a low-rate mortgage.
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3. No down Payment
You need cash when buying a house, unless you qualify for a VA or a USDA home loan. Down payment requirements vary. FHA home loans require a 3.5% down payment, but people with bad credit will need at least a 10% down payment. Conventional mortgage loans also feature low down payment options. In fact, the down payment requirement for conventional home loans will decrease from 5% to 3% in 2015.
4. No Cash Reserve
In addition to cash for a down payment and closing costs, some lenders will check your bank statements to make sure you have a small cash reserve 'after' buying the house. This isn't required by all lenders.
5. Weak Job History
Getting a home loan requires at least a two year employment history, preferably with the same job, and your income must remain the same or increase. If you're self-employed, you will need at least two years of tax returns.
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6. Expensive Housing Market
The housing market is stabilizing and homes are becoming more affordable, but you may live in an area with expensive homes. This makes it harder to buy your first place. You might have success buying a foreclosure or a short sale, which are often sold below market value. However, these homes are sold as-is, so you'll need cash on hand for any needed repairs.
7. Unable to Sell an Existing Home
I've experienced this first hand, and it's a frustrating situation to be in. You're ready to move, but your home won't sell. You can't make someone buy your home, so consider renting out your home. If this isn't an option, adjust your sale price, make improvements and offer seller concessions to attract interest and sell your home faster.
Buying a home has its challenges, and you'll face many roadblocks along the way. But it can happen if you do your research, plan well and anticipate problems. What are other threats to buy a house?
