Obstacles to getting a mortgage and how to overcome them

May 19, 2022
Posted in Programs
May 19, 2022 derekevansteam

Buying a home isn’t exactly the most accessible feat these days. There are a lot of requirements and many barriers to entry. It’s no wonder that a home is one of the biggest purchases, if not THE biggest purchase a person will make in their lifetime. We understand that because of these things, the process can be overwhelming and difficult for many to navigate, particularly when it comes to getting a loan with credit checks, income reporting, down payment, fees, etc. However, there are many resources out there that we offer that can assist hopeful homebuyers in achieving their dream of owning their own property. We’ll talk about some of them in this article, so let’s jump in. 

Why is homeownership so important?

Owning a home offers so much more than just a place to live. It’s one of the number one tools for building wealth in the United States because it offers families a way to invest their money while doing the double duty of providing shelter. The way this money “grows” is that when you buy a home, you’re purchasing an asset that’s almost guaranteed to appreciate in value over the years. The equity in your home isn’t just being built up through paying off your mortgage, but the longer you live in your home, the more the value will go up over time without you having to do anything but simply exist and continue paying your mortgage. 

This is obviously a great way to build wealth because unlike traditional means of investing where you put your money into accounts and let it sit and grow with nothing to show for it until you take it out decades down the road, you have invested in something that you can use and benefit from every single day. 

A 2019 survey done by the Federal Reserve showed that homeowners are wealthier than renters at every income level, and the majority of homeowner wealth comes from that housing. For example, for the lowest income group, the median net worth of homeowner households is $102,500, but for renter households it’s only $1,500. At the lowest income category, 92 percent of total homeowner net worth is tied to the value of residential property. This is pretty significant and demonstrates just how important it is for people to achieve homeownership in the United States as quickly as possible so that they may begin building wealth. 

That said, here are the top barriers to entry when it comes to home ownership, and some resources to overcome them.

#1: Credit Scores

Your credit score is one of the biggest elements that determines the loan you can get as well as your interest rate. This is because your credit score demonstrates how trustworthy you are as a borrower for various types of loans. The higher the credit score, the better deals you’ll be able to get when applying for loans. For example, when applying for mortgages, having a high credit score could get you a lower rate than someone with a poor score, as you’ve demonstrated yourself as less of a liability to your lender. But credit scores are complicated, and a variety of situations and circumstances can lead to a low score. 

The good news is, there are things that you can do to increase your score when considering purchasing a home. One of these is an amazing resource we offer called the CrediTools Credit Improvement Program. This program was designed to help borrowers get their score up fast. The way it works is that you get assigned to one of our highly skilled credit analysts to review your credit report and draft up a personalized credit improvement action plan. This plan will provide you with a step-by-step outline that you can follow to improve your score. Your credit analyst will be there with you every step of the way to guide you, answer questions, and help keep you on track to achieving your goals. To get started improving your credit or learn more, contact us today and an experienced loan officer will be in touch within 24 hours.

#2: Debt-to-Income Ratio

Another thing that can bog you down when applying for loans for homeownership is debt. Specifically if you’re in a lot of debt but lack the adequate income to off-set that debt. Car payments, student loans, personal loans, credit card debt, etc, can all add up and have a negative effect on your ability to secure an affordable loan. Your debt-to-income ratio is calculated by taking the sum of the monthly cost of these debt payments and dividing it by the borrower’s gross monthly income. 

This is really difficult to manage for some, because in the case of car payments, student loan debt, medical debt, and debt incurred from basic necessities, a lot of it can seem unavoidable. And the lower one’s income, the easier it is to fall into debt as one takes out bigger loans to cover what they are unable to with their salary. This article by Nerd Wallet is a great place to start when coming up with a debt repayment plan. 

#3: Down Payment

Coming up with tens of thousands of dollars in cash to put down for a home is not easy for most people, and for some it can feel entirely impossible. If a buyer wants to avoid paying the extra fee per month for private mortgage insurance (PMI), they must come up with 20% of the purchase amount as a down payment. And even if this isn’t doable, they will still have to pay the minimum amount towards the home in cash to even qualify for a loan, which can still be quite a lot of money for many people.

This is why we offer Down Payment Assistance programs in Arizona, Texas, California, and Washington. Each of these is different depending on what state you are in, but all offer great options for helping prospective buyers with their down payments.

#4: Not knowing that various types of loans exist!

When people consider getting a home loan, a lot of them are only aware of conventional loans. However, there are more types of loans that were actually created with the sole purpose of making homeownership more affordable. But people are often unaware that they exist, and so they don’t go looking for loans in the first place because they assume they simply can’t afford to buy a house. Here are some of these alternative loan options:

FHA Loans

Home loans insured by the Federal Housing Administration (FHA) can make it easier for someone to qualify to purchase or refinance a home. This loan option offers flexible qualification guidelines to help people who may not qualify for a conventional mortgage.

FHA loans are widely used by first-time homebuyers and people with low-to-moderate incomes since this government-insured mortgage features:

  • Low down payments
  • Flexible income and credit requirements
  • Fixed- and adjustable-rate mortgages
  • Loans for 1-4 unit properties and condos may be available
  • Down payment funds can be a gift from a relative or employer*
  • Home sellers can contribute up to 6% of the closing costs

*Subject to underwriting review and approval.

VA Loans

A Veterans Affairs (VA) loan is a special kind of loan that is government-backed and only available to those who have served our country through military service. VA loans have a handful of amazing benefits that other types of loans don’t carry, and are designed to reward veterans for their dedication to protecting and serving us. We are proud to offer these kinds of loans, and make it our mission to spread awareness of eligibility so that those who qualify can take advantage of the great benefits.

Here are some of the great benefits of this type of loan:

  • No prepayment penalties
  • No private mortgage insurance (PMI)
  • 100% financing with full VA entitlement
  • Fixed- and adjustable-rate mortgages
  • VA financing fees can be “rolled” into the loan amount
  • Variety of eligible property types, including townhomes and VA-approved condos

USDA Loans

USDA loans help low-to-moderate income homeowners obtain property in rural areas. They have a lot of great benefits over conventional loans, including:

  • No down payment requirement
  • Competitive interest rates
  • No first-time homebuyer restrictions
  • More flexible guidelines for qualification
  • And more!

In conclusion

Our ultimate goal is to get everyone we can into a home that is affordable and suits their needs. We have a lot of options available for people looking to buy a home but who are maybe unsure of where to get started or need help navigating the process. If this sounds like you, please don’t hesitate to reach out to us.