They say one great American dream is to be able to buy your own home with a picket fence. The perks of homeownership drive people to save a few years’ worth of savings just to start buying their first home. While some already managed to prepare a few things, not everyone can afford a home.
Even with the availability of different mortgage or home loans in the country, many first-time homebuyers are still unable to secure a home purchase. The pandemic may have brought an all-time low when it comes to interest rates, different obstacles are stopping buyers from acquiring their first home. The following lists the top four reasons that are blocking the path of first-time buyers and what you can do to address each one.
Not Enough Down Payment
Many first-time buyers were not able to save enough down payment for a home loan. They know that they need at least a 20% down payment to get rid of any additional costs and lower their monthly payments. But because of the rising home prices, many had to postpone home buying since the amount they saved up for is no longer enough.
Other first-time homebuyers made the mistake of house hunting even before getting pre-approved. They ended up finding these great houses, only to learn they can’t afford the down payment. Others who were hoping to take advantage of low or zero down payment loans were unfortunately denied.
All first-time buyers must make sure they are ready with a down payment and all the other costs associated with a home purchase. This is why it is advisable that buyers get pre-approved before house hunting and check all of their options before choosing a loan type. Not everyone is qualified for zero or low down payment loans.
The good news is, there are assistance programs for first-time homebuyers. This helps buyers with modest-income make homebuying much more affordable. You can also check if a home loan you qualify for accepts down payment gift money.
Poor Credit Score
It is not true that all lenders reject buyers with a poor credit score. But after buyers learned the consequences that come with having a poor credit score, many decided to postpone home buying. For one, they knew they can’t afford to make compensations, like a higher interest rate, bigger monthly payments, or both.
A credit score between 670 and 739 is considered a good score. But when you have one under 580, lenders already consider this as poor. If you want to pursue homebuying even with a poor credit score, you have a few options to consider. Some are the following.
- Pay off other debts to increase your Debt-to-Income ratio
- Acquire more down payment
- Consider an FHA loan, VA loan, or USDA loan
- Improve your credit score
- Find a cosigner
Financial Struggles Due to the Pandemic
Many people experienced a financial setback during the crisis. Many lost their business and jobs, rendering them with no choice but to use their savings to finance their everyday expenses. Some even had to use their down payment savings.
If you are in a financial setback because of the crisis, home buying may have been pushed out of your priority list. It would be best to wait until you get things back on track before adding a huge debt under your name. You don’t want to end up having a home only to exhaust your savings in return.
The good news is, you can look forward to President Biden’s $15K tax credit for first-time homebuyers in the future. You can use up to 10% or $15K tax credit for residential purchases. This is one thing you can definitely look forward to in the future
Many people who are unable to fulfill their dream home purchase are due to their low income. Their inability to save up enough down payment and their income stop them from even considering a preapproval from lenders. Know that there are many options available even if you belong in the group of lower-income population.
Aside from zero and low down payment loans, there are homebuying programs that offer you excellent savings if you meet their requirements. Some can help with your down payment while others aid in closing costs.
A home purchase is never cheap. This is one reason why many people need to save a few months to a few years just to be able to pay for a down payment. The good news is, there are many ways determined first-time buyers can go around buying houses thanks to the numerous options available. If you think you are ready for a home purchase, you can use this shortlist as your guide.