The number-one obstacle most first-time home buyers face is simply a lack of knowledge. Below, we’ve listed some of the most common hurdles you’re likely to face — and how to overcome them.

Problem: ”I don’t have enough cash for the down payment.”
Solution: Some common mortgage programs require down payments as low as 3%. If you have a strong income and excellent credit, you may qualify.

The Federal Housing Administration accepts down payments as low as 3.5%. Conventional loans require minimum down payments of 3% to 5%.

You might even consider borrowing your down payment from yourself. As long as the extra debt would not adversely affect your buying power, your current assets, such as a car, boat or life insurance policy, could be resources to draw upon. In addition, first-time buyers can withdraw from their Individual Retirement Accounts to purchase a home, without an early withdrawal penalty. (Restrictions apply.)

Problem: ”I don’t have enough money for — or I don’t want to pay for — up-front fees and points.”
Solution: Look for no-cost programs. These days, lenders offer finance packages that require no points and no fees. A point equals 1% of the loan amount and, in essence, is pre-paid interest to give you a lower interest rate. While you may have to pay a slightly higher interest rate (and therefore a higher monthly payment), a no-points/no-fees loan can get a buyer into a house when there’s just not enough cash left after the down payment.

Problem: ”After making my down payment and closing costs, I don’t have money left for up-front mortgage insurance.”
Solution: Buyers who put down less than 20% must purchase private mortgage insurance to protect the lender in case of default. In today’s market, however, some insurance companies will let buyers finance the up-front mortgage insurance over time.

There are also “self-insure” programs available to you if you are able to handle paying a higher interest rate.

Problem: ”I want to buy a home, but I have a bad credit record.”
Solution: What seems like bad credit to you may actually be sufficient to get you into your next house. If you know for certain your credit is blemished, but with good reason — such as illness or loss of job — a letter of explanation could go a long way with the underwriter.

For those who have bad credit with no explanation, all is not lost! Change your credit habits, consolidate debt and pay your bills on time. It’s going to take 12 to 24 months of good credit history to clean up your record, but the benefits of homeownership are worth it.

Problem: ”I have a special situation that would prevent me from getting a loan.”
Solution: The bottom line in qualifying for a home mortgage includes a combination of income, debt ratios and credit ratings. Anything outside those three can usually be explained or documented. Below are some special situations and how to work around them.

  • Self-employed or commission-paid borrowers must provide federal tax forms for the past two years, along with a current year-to-date profit and loss statement.
  • Divorced or separated borrowers will need to provide a copy of the divorce decree and separation agreement, plus documentation of any alimony or child support payments they are required to make. If alimony or child support payments are to be considered as income, proof of this income (such as the clerk of court’s history of payments or canceled checks for the past 12 months) must be included.
  • Retired borrowers and others receiving pension, disability, Social Security or any form of public assistance benefits as income will need to provide a copy of an award certificate or a check from the issuing agency.
  • Bad-credit borrowers who have bankruptcy, foreclosure or other judgments against them in the past seven years should provide information on the proceedings. Information on bankruptcies should include a copy of the bankruptcy discharge and a schedule of both debts and assets. Judgments against the borrower should include an attorney’s letter that discusses the outcome of the proceedings.

If you are interest in more information we have great lenders who would love to help, just give us a call. 720-515-0248