3 Reasons Why It's Tough to Get A Mortgage & How to Overcome Them

How Can Buyers Overcome Stringent Mortgage Qualification Thresholds?Many Americans agree that in recent years, it's become increasingly difficult to secure a mortgage. According to the Mortgage Bankers Association, availability lingers at lows after plummeting from high-water marks in recent years. But the good news is that mortgage credit availability appears to be on the upswing. Although getting approved for a mortgage remains a challenge, applicants may be able to overcome some common reasons for being denied. Read on to learn about three ways homebuyers can navigate the challenges of obtaining a mortgage.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

What to Do With Low Appraisals in Areas With Rising Property Values

Property values recently rose at a reported double-digit rate for upwards of 40 straight weeks, and listing prices reached their highest levels in nearly 10 years in some markets. The accelerated real estate values, coupled with a residential home shortage, have prompted some eager buyers to make offers above the asking price. With demand and prices rising simultaneously, competitive strategies create a loan-to-value ratio disparity that can increase the challenge of obtaining a loan for other buyers. However, there are several solutions available, including:

  • Renegotiating the offer to comply with lender approval thresholds
  • Increasing the down payment to offset the lender's risk
  • Applying to a lender who is willing to account for rising property values

It may be safe to say that sellers occupy a position of strength in tight real estate markets based on inventory shortages. They may be unwilling to take less, knowing others will be champing at the bit to buy the property. Because not all lenders are willing to compete with rising property values, some buyers might need other options.

Balance Debt Using the 28/36 Rule

Potential homebuyers with debt from student loans, car leases, and credit cards my experience added difficulty when applying for a mortgage. While it may not be feasible to write a check and eliminate large loan balances, buyers can start small by paying off credit cards and other personal loan debts before applying for a mortgage. Consider practicing what is commonly known as the 28/36 rule. This financial standard recommends applicants not exceed 36% of their income going to debt, and approximately 28% of that figure should be applied toward the mortgage. Some lenders approve mortgages at higher debt rates. However, retooling a financial portfolio to comply with the 28/36 rule generally improves approval rates.

How to Secure a Sufficient Down Payment as Home Prices Increase

Property values reportedly spiked by upwards of 49% over the past decade, and the market sustained the largest price increases in years. As a result, this increase also raises the cost to make a 20% down payment on a home.

Although prices continue to rise, there are ways to close the gap between increased home prices and the traditionally desired 20 percent down payment. Loan applicants can employ private mortgage insurance (PMI) in some cases and gain approval with less than 20% down. This additional security may prove a financially sound way to get get started. Homeowners can later rework the home loan to shed the added expense.

Another possibility involves targeting properties that require extensive remodeling. So-called fixer-upper loans provide buyers with a pathway to buy low, do the work, and gain substantial equity upon the construction's completion. As a result, renovation loans can better position some buyers.

The mortgage lending sector remains relatively tight. Factors beyond the control of hopeful homebuyers can make securing a home loan a Herculean task. However, savvy financial strategies can give prospective homeowners additional leverage and security in competitive markets.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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