It can be difficult to get financing for a residential loan, but it doesn’t have to be. There are many common myths that people believe that just aren’t true. Because of these misconceptions, many people don’t even apply for a loan because they have doubts that they would qualify. We will address the most common myths and the only true method to secure financing.
“I still have student loans so I won’t qualify.”
The amount of college debt today measures in the trillions and grows every day. In today’s world, almost every college student has a loan. If this myth was true, then there would be millions of people not able to buy a home in America. This misconception is very common and grossly inaccurate.
The resounding theme of this article will be debt to income ratio. What the bank is going to measure in this circumstance is how much income you produce through your work and assets, compared to the amount owed on your student debt and your monthly payments. Even if you have hundreds of thousands of student loan debt, you may still qualify for a mortgage loan. Your mortgage provider is going to look at the whole picture, not just your student loan.
“I have a foreclosure on my credit report, I’ll never be able to buy again.”
There have been countless people affected by the financial crisis of 2008, many have been foreclosed on and lost their homes. There is also a vast array of reasons why people could lose their home, varying from poor financial decisions to family crises. This is a real problem and keeps many people from purchasing again.
However, there are ways to repair bad credit, and sometimes even remove it. The lender you utilize to get qualified will determine the lending guidelines. Some banks may not lend money to someone who has a foreclosure, while some credit unions and small mortgage brokerages can because they have access to private or special circumstance lenders. These smaller lenders don’t have as many compliance regulations or rules as the bigger, established banks, and can typically find ways to make a loan work for you. The bigger banks have a tendency to look for ways to disqualify people if they don’t fit the profile of a picture perfect client.
“I’m self-employed, or on a commission-based income and have been told that I can’t qualify without several years of steady income.”
Almost all of the sales industry utilizes a commission-based pay structure. Additionally, with startups and entrepreneurship becoming more common, people believe that they won’t be able to qualify for a home loan. It is true that it may be more challenging, and that more documentation is needed, but business owners and commission-based employees are definitely financeable. The difficulty comes from the inconsistency of the paychecks and commissions. You may have a couple outstanding months where you make the bulk of your yearly earnings and some months where you make very little. It is these ups and downs that make lenders wary, however, there are several ways a lender or your employer can help you through this.
The most common method of creating visual income consistency that I have seen used requires assistance from your employer. If your employer is willing to help, they may be willing to pay you a salary for 60-90 days based on your average production for the year. This can be set-up by utilizing the commissions you earn going towards your salary. For example, if your average salary is $4500 per month but you make $6000 one month, they would keep the extra $1500 and apply it to the next sub $4500 month. This can easily be set in place to show a consistent income and then be switched back at a later time. It’s possible that you may have a less-than-cooperative employer, or one that simply doesn’t want to create special circumstances for a single individual, but your lender should have suggestions for working around these issues.
The only true way to secure future financing for a loan is to increase your income, not budgeting. If you never increase your income, you can only cut so much out of your budget before you can’t cut anymore. This is a losing formula, not only does it not work, but it removes the leisure and pleasures of life that you have worked so hard for. I’m not talking about living extravagantly and doing whatever you want, cut the unnecessary items but not to the extent that you suffer or are unhappy.
Instead of restricting yourself, explore the many ways that you can increase your income. If you are self-employed or have a sales job as mentioned above, then take training opportunities and learn to effectively close more deals. If you are an hourly employee, then find new ways to add value or revenue to the company you work for, prove that you can do that consistently and then ask to be paid for it. Other ways include joining a MLM, learning to sell things on Amazon, getting a second job or creating your own business. The key here is to learn how to produce more income and then implement it. By doing so, you will be able to keep your expenses the same and increase your income, which improves your qualifications for lending.
There are many more financing misconceptions floating around that might deter you from trying to prequalify, but have no fear, because there are plenty of ways around the negative situations to get you into a new home. If you have any questions, reach out to me or Precision Home Group in Anchorage, Alaska at firstname.lastname@example.org. I would love to talk to you about this and ways that you can increase your income.