If you’re a first-time home buyer, you might think you’re not ready to purchase a house. Perhaps you’re concerned about your job situation, your previous credit history, or your high monthly expenses. Whatever the circumstances, every borrower and financial situation is unique.
Unless you’re a financial expert, it’s best not to self-diagnose your financial problems. You wouldn’t skip out on the dentist to fill your own cavities. So don’t try to solve your financial troubles yourself either. A loan officer can walk you through your options—and they won’t try to drill your teeth.
When you apply for home loans, loan officers look at your credit score credit history, monthly liabilities, income and assets. Our mortgage experts see your entire financial picture, not just the investable funds. A reputable loan officer with experience can get you on the right track for buying a home.
Here are three common reasons people don’t want to apply for a mortgage and what to do if you’re really serious about buying a home.
A Less-Than-Ideal Credit Report
The reality is that mortgage companies are required to pull a copy of your credit report. The report includes scores from all three credit reporting bureaus. Your credit report is the most accurate representation of your credit available. Don’t let your messy credit report keep you from talking to a lender. After reviewing your credit report, the lender can tell you what debts are the biggest drain on your borrowing power. So you can start making smart financial decisions and potentially improve your score.
Not Enough Income
Let the mortgage company review your pay stubs, W-2s, and tax returns for the last two years. Self-employed? Let the loan officer look at your tax returns and evaluate your credit to determine what you can afford. The lender can give you an idea of what to do to qualify, including how much more money you need to make to offset a proposed mortgage payment. With an action plan and a strategy in place, it may just take you a matter of months to button up your financial picture to qualify.
Too Much Debt
Debt and liabilities definitely impact spending power. Every dollar of debt you have requires two dollars of income to offset it. So for example, if you have a car loan that’s $500 a month, you will need $1,000 a month of income to offset that monthly liability. If more than 15% of your income currently goes toward consumer debt, you’ll have to either pay off debt or get more income—perhaps via a cosigner—to qualify for mortgage financing. Again, let the lender look at your financial picture so they can tell you what it takes to make it work.
If you’re planning to buy a house in the future but aren’t financially ready, talk to a professional. Meet with them face-to-face, provide them with all of your financial documentation, let them run a copy of your credit report, and go through a pre-home buying consultation so they can either pre-approve you or tell you what to do to become pre-approved in the future.
Many times, potential buyers are not ready, but having a conversation with a professional—so you know where you stand and where you are going—can be tremendously beneficial.