The great news for home buyers is that home prices are low and interest rates are also very low. The bad news is that with the number of people that have defaulted on their mortgages, lenders are more cautious about approving new loans. Here are a few things to watch out for:
-Bad Credit: The first thing a lender will do is pull your credit report. Make sure you know where your credit is before you talk to a lender, you don't want surprises when you are talking to your loan officer.
-No Down Payment: The days of zero down loans is over. You need to have 3.5% for a FHA loan and usually at least 5% for a conventional loan. If you qualify for a VA loan or a rural development loan, you may still be able to do zero down, but those are the only options left.
-Income too low: You have to be able to verify income, if the lender can't verify your income, they can't use it. The days of no income verification loans are also over. The lender also needs to verify that the income is likely to continue.
-Employment history: Your lender will verify a two year history. If you have job gaps, you may have to wait until you have at least 6 months on your current job.
-Too Much Debt: If you are already over extended on your credit, you may not be able to qualify. Lenders have lowered the debt to income ratios that we are using to make sure you can make your payments.
-Market Value of your Home: The home you want to buy has to be appraised. If the homes that have sold in the neighborhood are a lot lower, the home may not appraise for your purchase price. Many lenders are also using a computer generated appraisal review to make sure the appraisal value is accurate.
-Bad Neighborhood: If the neighborhood you are buying in has a declining value, you may not be able to get a mortgage. Lenders are concerned that the value of your home may decline more and you may end up upside down.
-First Time: Sometimes the hardest home to get is your first home. You need to make sure you have a good credit history and rental payment history. That can help to show the lender that you will make the house payments.
-Last minute changes: Everything can be going well and your mortgage may be approved, but sometimes things change at the last minute. Losing your job, running up your credit cards, opening new debt can all affect the ability to get your mortgage and lenders are verifying this information right before closing.