Five Things that Halt the Home-Buying Process

credit repairThere are many reasons to pursue credit repair, one of which is homeownership. Credit is king in the world of mortgages and only the best consumers secure low interest rates. If your credit score has dipped below 720, you’re in danger of home loan rejection. Read on to learn other reasons that give lenders pause. Education is the first step.

 

Are you thinking of buying a home? Lenders may hesitate if you have:

  1. Too much debt

    Student loans, child support, car loans, tax debts and mortgages: all of these affect your debt-to-income ratio. 43 is the magic number when it comes to home buying. A lender is unlikely to approve a mortgage if it exceeds 43 percent of your gross monthly income. For example:

Annie’s gross monthly income is $6,900. Her qualifying debts total $2,300 per month, resulting in a debt-to-income ratio of 33.3 percent, leaving her with only $667 a month to secure a mortgage before reaching her 43 percent limit ($2,967). She’ll need to reduce her debts before pursuing a housing loan.

  1. A spotty income

    Consistent employment is a must for mortgage lenders. Ideally, they like to see borrowers who have maintained a steady income for two years or more. Company-hopping isn’t going to help your case in the housing market. Sure, you have a new job that pays well, but can you prove your career’s longevity? Give your work history a chance to grow before filling out a loan application. When it comes to approval, reliability is key.

  2. A small down-payment

    The rules have changed for homebuyers. Gone are the days of no-money-down mortgages. Lenders have tightened their restrictions since the housing crash, expecting up to 20 percent down in order to secure financing. While there are no definitive rules, you’ll have an easier time with more savings. The ability to invest in your home’s equity illustrates your commitment to the deal. Consider building your bank account before building a home.

  3. Too many new accounts

    It seems counterintuitive, but pursuing new credit may be the thing that prevents you from securing a new mortgage. Too much credit can increase your risk level and temporarily lower your credit score, two items that are sure to worry lenders. Avoid new accounts in the months leading up to your home purchase. Better yet, talk to a professional about how to improve your credit score before buying. The result could lead to a lower interest rate and greater savings.

  4. Bad credit

    All these factors culminate into one conclusion: bad credit. High debts, unreliable income, little savings and over-borrowing are a recipe for credit score disaster. Buying a house is a 30-year commitment, one that your lender wants you to take seriously. Beyond the expectations of others, it is also a responsibility that you should take seriously. Get your priorities straight before pursuing a life of homeownership. You’ll find comfort in financial stability and motivation to keep it that way. Buying a home is a perk—credit health is a necessity.

 

If you’re looking to move into a home, but worried about poor credit, check out your credit repair options here. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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