You did everything exactly right. You’ve managed to maintain good credit and save enough for a modest down payment on your dream home. Naturally, you’re stunned when your bank refuses to approve you for an affordable mortgage. How could this have happened after you worked so hard?
Just three years ago, the above scenario was unheard of. Lenders were willing to approve just about every applicant, and those fortunate enough to have good credit found themselves rewarded with extremely low interest rates and very little money down. Now, those very same people are being asked to come up with a down payment of 20% or more, assuming they can even get through the door. Fortunately, there are still some avenues left to owning a home of your own. The trick is to know where to look.
Try the ‘little guy’
All too often, prospective buyers flock to national banks for home loans. But a large bank doesn’t rely solely on local business, making them less likely to approve a loan and more likely to stick to their own internal requirements, which can result in a higher down payment or a high interest rate. A smaller local bank or credit union is dependent on the customers in their region and generally will be more flexible to get your business.
Find local programs
Neighborhood coalitions, regional grant associations, even block clubs want to help you buy a home. Many have closing cost assistance programs, grants that do not have to be repaid to repair ‘fixer-uppers’ and ‘handyman-specials’, plus other incentives that can bring your out-of- pocket costs down, freeing up more money for your down payment. Be sure to read local publications and visit the town or city hall in the area you want to buy a home in, as not all programs are advertised.
Don’t Be Afraid to Haggle
Before the real estate bust, houses were disappearing almost as quickly as they were listed. Sellers knew that someone would come along and pay the price they were asking, leaving very little bargaining room for potential buyers. Now, houses routinely sit on the market for months or even a year before they are sold. Use this knowledge to your advantage. Make an offer lower than you are actually willing to pay to get the negotiations going, but be careful if you ‘low ball’. When the offer is too low, the seller may feel insulted and walk away. Another possibility is getting the seller to agree to pay all closing costs, which can easily run into the thousands.
Look at the Private Market
Increasingly, sellers fearing a long wait are taking matters into their hands. Forgoing a real estate agent, they are both listing the property themselves and financing the buyer’s loan. This is called a private mortgage. The money you pay per month goes directly to the seller instead of a bank. It is best to use a real estate attorney, have the home inspected, and use other services necessary in a traditional sale to protect both you and the seller legally in your state.
Don’t Give Up
The process of buying a home can be frustrating. Set your ownership goals and stick to them. As most homeowners will tell you, it’s certainly worth it in the end.