By M.-J. Taylor
All across the United States, the last ten years have been a bumpy roller-coaster ride in the housing market, as even non-investors have made or lost their fortune on the sale of one single-family residence. The jolting market has left many Americans a little wary of the real estate market as perceived volatility has left us wondering what surprises lurk behind the corner moving forward. Is now the right time to buy? Did I miss my window? Am I better off waiting?
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The problem facing many families today is less about market volatility and more about qualifying for a loan. We all know about the mishandling of mortgages by banks prior to the crisis and how lenders are now much more cautious about approving new loans. Overall this is a positive thing for homeowners. More control means that lenders won't let you get in over your head, and fewer defaults will help to keep the market healthy.
But families who are having a hard time getting the money they need to buy a home don't want to hear about these positive side effects of responsible lending, they want approval, and here are some ideas to help them get it:
An oldie but goodie
Long before the loose lending spree of the 1990s, it took time to build credit and most young people starting out needed a cosigner to get a loan. Cosigners were common not just for mortgages, but also for car loans and credit cards.
"Today, asking a trusted friend or family member to cosign on your loan is still the quickest option for getting approval for a mortgage when your credit score is shaky or you are too young to have earned much of a rating," says Paul Joseph, Broker for Key Colony Beach Realty, Florida Keys.
It is a difficult conversation to have, to ask mom and dad, or a good friend to sign on the dotted line for such a major responsibility. But it can never hurt to ask, and nobody is going to cosign for you unless they feel comfortable.
|Cosigning a mortgage loan application can improve chances of approval|
How to ask a cosigner to help
The best approach is via email. You won't put anyone on the spot for such a big favor; an email request gives them time to mull over the idea and give you an honest answer. But don't beat around the bush either. A short letter asking if they would consider cosigning on your loan is all you need. Surely the people close to you will understand why you are asking. But don't pressure anyone into cosigning for you, it is a big request and so you don't want to ruin a relationship should things go awry.
Listen to your mortgage broker - Duh!
If banks continue to turn down your loan applications, perhaps it is time to have a serious think about the properties that you are looking at. If lender after lender says that you can't afford X amount, maybe they are on to something.
Consider starting out with a less expensive property and then upgrading down the road when your finances improve. Sure, we'd all love to live in the heart of the city or on the waterfront, but you would be amazed to see how many tens of thousands of dollars you can save on your house by looking at the house across the street without the view or by adding another mile or two to your commute.
Same goes with down-sizing. Be honest about your needs. Remember that you grew up sharing a bedroom with your brother, and you turned out alright! Often times first time home buyers are out of touch with the difference between "want" and "need."
Say, pretty please
Believe it or not, many lenders will offer you a second opinion just like at the doctor. - if you ask. If your first application is turned down but you really feel that you can afford the loan, ask politely to have your application looked at again by the loan officer's manager. Begging for a loan won't get you anywhere, but requesting nicely that the bank to have someone else go over the numbers with a different set of eyes works more often that you'd think.
How's your credit?
Clean up your act - and check your credit. Buying a house isn't something we decide to do overnight. Most people know at least 6 months out that they are going to start looking at properties down the line. When you decide that you may want to buy soon, take the time to clean up your credit. Pay off credit cards and get rid of cards that you no longer use.
Check into your credit rating and if it is unacceptably low, take the actions needed to improve your rating long before you need to apply for a mortgage. You'd be surprised how quickly you can improve your credit score in just 3 or 4 months by seeking advice on improving your score and buckling down to pay off debts. Credit Repair Advice from the FTC.
If you are single, or even a struggling young family, consider going halves with someone else. It might sound crazy, but two incomes are better than one! Buy a split level or even a duplex and you can each have your own living space for half the mortgage. While this idea might not be ideal, sometimes you have to listen to Tim Gunn, "Make it work, people!"
Not out of the water, yet
So you finally get approved! Yes! Well, until the deal closes and you're wandering around your new house in your undies, don't go all footloose and fancy free with your credit, because if the bank was tentative about lending to you in the first place they may just pull that approval right back from under your feet.
Most lenders run a second credit score check right before closing. If you've gone out and bought a new car or charged up your credit cards since your loan was approved, the lender is going to see red flags. If you plan on having Visa or MasterCard furnish your new home, wait until you've got the keys in hand! It's frustrating getting turned down for a mortgage, but if you've got your heart set on owning your own home, there are plenty of options to help you get approved.
More help on getting a loan from Realtor.com: 3 Steps to Getting a Mortgage.
About the author: M.-J. Taylor lives in Key West and writes for Key Colony Beach Realty. She likes to spend time enjoyng the beautiful natural world and ever warm water and weather of the Florida Keys.
Images: Author owned and licensed