The day you decide to purchase a house is the day you feel adrenaline rushing through your body. Having that constant fear in the back of your mind, afraid of not having enough down payment or maybe your credit score is too low. Possibly, your debt is too high. Those fears are what might make you take a step back and ask yourself if it’s worth going through the home process.
But did you know it’s very possible you won’t be turned down for a loan? That’s because there are three types of home loans. A lot of those fears might just simply be misconceptions.
Here’s how you can overcome your mortgage fear:
“I don’t have enough for a down payment”
According to the National Association of Realtors, the average median down payment has been 5% for first time buyers for decades. People don’t realize there are different kinds of mortgage loans that requires less than 20% down. Many borrowers put down less than 2%.
Homebuyers who go with an FHA (Federal Housing Administration) loan type can put down as low as 3.5%. Borrowers who take out a VA (U.S. Department of Veterans Affair) mortgage have the offer of 0% down.
While many believe a 20% payment is a requirement, you can see that there are different loan options available.
“I have too much debt.”
Don’t assume no one will lend you money to buy a house or a condo just because you have debt to pay off.
Lenders typically want to see that you spend less than a certain percentage of your total income on recurring monthly debts. When looking for a home, most lenders look at the borrower’s debt-to-income ratio.
Let’s say you’re paying $300 a month on your student loans, another $400 on credit card debt, $300 on your car loan and expect a mortgage payment, including taxes and insurance, of $800.
The lender will find this ratio by adding your monthly debt payments and then dividing that number by your income. So, with that monthly pre-tax income of $5000, your debt-to-income ratio is right at 36% where it lies for conventional loans.
“My credit score is too low.”
The minimum credit score for conventional loans is 620. FHA loans require a minimum of 500. The VA does not impose a minimum credit score requirement. However, most lenders would want to see you have a minimum credit score between 580-620 before approving a VA loan. This can vary lender by lender.
“I don’t make enough money.”
Most lenders expect borrowers to have monthly housing costs consume less than 28% of gross income. The lenders will measure housing expenses as a percentage of gross income which indicates if a borrower can make the payments on their mortgage loans.
For instance, if a borrower’s salary were $5,000 a month, a lender would want to see the housing expenses were less than $1,400 per month.
Budgeting is key, so don’t lose hope!
“Getting turned down for a loan.”
When searching for a home, you should consider getting pre-approved. It can get you a very good idea of where you stand, and this will help you boost your confidence when buying your dream home.
The pre-approval process is free and it’s one of the most important steps when getting a mortgage.
Before you decide to buy a house, find out if you can put your housing costs to work by buying this year! If you have any questions for us, don't hesitate to give us a call at 770-552-1000 or send us an email at skatz@vandykmortgage.com. We look forward to hearing from you soon!
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