How to buy a home if you don't meet the financial requirements

Please enjoy the following guest post with advice for buying a home if you don't meet the financial requirements.

​Emma Grace Brown has a website called My Life. My Rules, where she writes about her philosophy about life.

​Buying a home takes research, time, and money. For people who want to buy via a mortgage, it often requires a good credit score. If your score is below what lenders consider acceptable for a loan, you should explore your options. But before you start the process, you should use a mortgage qualification calculator to know the amount you can afford. This gives you an idea of the price range and the amount you can ask from the lender. Top lenders advise borrowers not to spend more than 28 percent of their income on a mortgage.

Here are some of the options you should explore to buy a home if you don’t meet financial requirements, brought to you by Love After Kids.

Increase qualifying income

The underwriter reviews your income to know if you can qualify for the mortgage you seek. Unless you have a history of holding several jobs, most underwriters will not consider income from part-time jobs. According to the Equal Opportunity Act of 1976, the income a borrower gets from public assistance programs should be considered to qualify for a loan if it’s determined the income will continue for at least three years. Other income sources you can consider when applying for the mortgage include alimony or child support, boarder income, long-term disability income, capital-gains income, interest and dividends, and pension.

Get a co-borrower

Also, you have the option of bringing in a co-borrower. The extra income helps you qualify for a bigger house loan. A co-borrower can be an occupant or non-occupant, so an occupying co-borrower is someone who lives with you, while a non-occupant co-borrower is like a co-signer, who does not live with you but is responsible for payments. If you can find an occupant co-borrower, it will be easier, as some lenders apply restrictions on non-occupant co-borrower loans, including requiring a higher down payment. For fewer restrictions, consider getting government loans.

Apply for an FHA Loan

The conventional mortgage is the common type of home loan people prefer. If you want to qualify for this mortgage, you must have an income-to-debt ratio of at most 43 percent. Also, you must prove you have a stable income, and your credit score should be within the 600s or more. A person with no credit score will generally not be approved for a conventional loan. Instead, they should consider a mortgage backed by the Federal Housing Administration (FHA). The FHA loan is recommended if you don’t have a good credit score, but you should note that the interest rates may be higher. 

VA Loan

A VA loan is a product designed for current members of the military. One can qualify with no credit check requirements, and there’s no minimum down payment. Also, the interest rates are lower than the average market rate. For low-income borrowers, this is an appealing option you can use to buy a home. Often, VA loans are open to first-time borrowers, so if you’re buying a second home, you may not be eligible.

Build better credit

One of the ways you can build credit is to pay off as much debt as you can before you apply for a home loan. When you settle your debt, you effectively increase your credit score, which opens doors for better loan terms. Review your credit report to know what is impacting your credit score, then follow steps to improve it. Follow steps to lower your debt-to-income ratio by paying off debt, increasing your income, or doing both.

To help you save up money for a down payment or to restore your credit, consider moving into an apartment. You can find apartments in and around Austin that suit your budget. Sites like Rent.com can help you sort through the thousands of listings by monthly payment. This could be the temporary solution you need to get your finances back on track.
 
When you embrace these options before looking for a home, you will make the process much smoother. Work on your credit score and consider loan products that offer better terms for people with bad credit. Once you secure funding, you can search for a home with confidence.

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If you haven’t already read the book, it’s a great place to start - Relationship Reboot: Break free from the bad habits in your relationship.
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David B. Younger, Ph.D. is the creator of Love After Kids, for couples that have grown apart since having children. He is a clinical psychologist and couples therapist with a web-based private practice and lives in Austin, Texas with his wife, 17-year-old son, 8-year-old daughter and 9-year-old toy poodle.