Welcome to our section on dispelling home buying myths of qualifying for a loan.
As you probably know, buying a home can seem daunting and knowing what’s fact and what’s fiction makes it even more complicated. That’s why we’re here to talk about some of the myths surrounding buying a home.
This page focuses on myths surrounding qualifying for a home loan.
Five common myths we’ll tackle are:
- It is hard to qualify for a low down payment mortgage
- Without perfect credit, I cannot buy a home
- I need to have been on my job for at least 2 years
- Low down payment mortgages and programs are only for borrowers with low income, no money, or poor credit
- I have student loan debt so I won’t qualify
Let’s look at myth one; it is hard to qualify for a low down payment mortgage. Some people believe that mortgages with a low down payment used to be easy to obtain but now are harder to qualify for, or that some programs (ie FHA) are harder to qualify for than a Conventional loan.
Is this true? Let’s take a look at the facts. This myth is not true.
In fact, FHA was created in 1934 to steady falling home prices during the Great Depression. The needs of our nation has changed throughout the years from helping finance military housing for returning veterans and their families after World War II, to later making it possible for home buyers to get financing when recessions hit. Similar to what happened in the 1980’s and again in 2008. So, from the beginning, FHA has existed to make it easier and more affordable for the average working person to achieve homeownership.
Today, FHA is the largest insurer of mortgages in the world facilitating home loans across the country by providing lenders the confidence to make loans to creditworthy borrowers. FHA insured mortgages have been so beneficial to individuals and families that now, one in five mortgages are FHA insured. All this means FHA insured mortgages are an excellent option for today’s first-time home buyers.
We here at AAA Capital Funding are constantly educating homebuyers and Real Estate Agents that an FHA loan is a massive help for families. There is no reason any Real Estate Agent or home seller should push away an FHA buyer (unless the home is a condo).
With an FHA mortgage, you can finance up to 96.5% of the purchase price. We also offer Conventional loans with a 3% down payment for first time homebuyers or 5% down payment if it is not your first home.
Compared to conventional loans, FHA has easier qualification requirements such as allowing higher debt to income ratios, being much more lenient towards past credit issues, not requiring reserves, and other relaxed guidelines.
AAA Capital Funding will also allow you to use a co-borrower such as a parent to help you qualify for a loan and provide flexibility for the use of gift funds for down payment and closing costs.
Are FHA insured loans hard to qualify for? No. The fact is that the opposite is true.
AAA Capital Funding and FHA makes home buying easier.
Myth 2 focuses on credit.
Many people believe that without perfect credit they cannot buy a home. Many people are also confused about their credit score when shopping for the best interest rates.
In this section, we will tackle several myths surrounding credit.
Starting with the myth: without perfect credit I cannot buy a home. The truth is you do not need to have a perfect credit score to qualify for an FHA insured loan. FHA insured loans require just 3.5% minimum down payment for borrowers with a credit score of 580 and above. Credit scores between 500 and 579 require a 10% down payment.
Calling and speaking to AAA Capital Funding about your credit concerns is a wise idea. We understand fha’s guidelines as well as Conventional (Fannie-Mae and Freddie-Mac) guidelines and can help you determine the best course of action to take. We can assist you with reviewing your credit scores and the next steps you can take to purchase a home.
Most large Banks and Credit Unions have strict requirements when it comes to qualifying for a home loan. AAA Capital Funding offers FHA and Conventional (Fannie-Mae and Freddie-Mac) loans exactly as they are intended with no additional requirements. The Banks and Credit Unions will place additional requirements a=over and above what FHA requires. If FHA allows it, AAA Capital Funding does too with no additional restrictions. With less than perfect credit, you may still qualify.
Knowing your credit score is important no matter what your situation and especially when buying a house, so contacting the three big credit bureaus Equifax, Experian, and TransUnion to find your credit score is a good first step.
Let’s look at another credit myth that some people are led to believe; that unless they have a long established credit history they cannot get a loan. Meaning, that some people with short credit histories, or little to no credit histories may have an issue qualifying for a mortgage.
This requirement may be true for bigger Banks or Credit Unions, but AAA Capital Funding allows for very little to no credit history. We follow HUD FHA, and Fannie-Mae and Freddie Mac’s minimum requirements with no additional requirements or restrictions.
Having a high credit is always ideal and a higher credit score often indicates you are good credit risk, there are many people especially first-time home buyers may not have a long established credit history.
AAA Capital Funding programs allows borrowers with lower credit scores and no minimum requirement for the number of trade lines you may have.
FHA, Fannie-Mae, and Freddie-Mac have allowed AAA Capital Funding to use an automated underwriting tool to qualify for a loan. We have a direct link to approve someone exactly how FHA and Fannie-Mae and Freddie-Mac has intended. This is all for the sole purpose of approving you for the best mortgage possible for your specific situation.
AAA Capital Funding also has programs that allow someone with no credit score to be qualified using non-traditional credit with manual underwriting.
Let’s talk about how AAA Capital Funding uses non-traditional credit to help borrowers qualify
AAA Capital Funding allows the use of something called non-traditional credit to determine the credit risk for some applicants. These include bills that are not reported to the credit bureaus such as Equifax, Experian, or TransUnion and may be used to determine your ability to pay your loan bills. Some of these include such things as utility bills, car insurance, cell phone bills, and internet and cable bills to use these as proof of on-time payments. If we have to go this route, AAA Capital Funding will ask the company for your payment history and then review it to determine your eligibility.
To sum it up, you do not need perfect credit to buy a home with AAA Capital Funding.
As we said earlier, AAA Capital Funding has many mortgage programs available. Please do not let other companies, Banks, or Credit Unions discourage you from buying a home.
The best thing to do is reach out to a loan officer at AAA Capital Funding to find the solution that’s right for you.
Myth 3 is one we often hear about and that is regarding the topic of employment and how long you need to be on your job.
The myth is; I need to have been on my job for at least two years to qualify for a home loan.
You do not need to be on the exact same job for two years. However, we do need to document where you have been working or going to school for the past two years. You can be on your job for one week as long as we can document a full two years of either school or previous employment. We have to be able to document two years of work, school, or a combination of the two.
The fact is, you must demonstrate that you consistently earn enough income to qualify for the loan and that you are able to maintain ongoing monthly mortgage payments after the loan closes. We here at AAA Capital Funding can help with this thru the Underwriting process.
Although FHA, Fannie-Mae, and Freddie-Mac generally requires a two-year history of stable and recurring income to get a loan – the misconception is that you must be on the same job for the last two years. This part is not true. You do not need to be on the same job for two years. T
There is more to know about showing your employment history and AAA Capital Funding can help you with this.
Self-Employed borrowers do need to document at least two years of being self-employed by showing tax returns to verify this.
W2 employees do not need this two year requirement – call us for further clarification.
If you are self-employed, your income needs to be from the same business and supported by your last two years of Federal tax returns.
Part-time work, overtime, bonuses, seasonal work, and commissions are also acceptable but since these types of income are less regular, the income you earn is averaged over two years.
Self-employment works the same way. If you are self-employed, the net income on your most current two year tax returns will be averaged (as long as the income is not significantly declining from one year to the next).
Other sources of income may be used such as if you receive a monthly trust payment or annuity payment. Like the other income, it must be averaged over two years to qualify.
Some other types of income must be documented that they will have the likelihood that they will continue for three years (child support, temporary disability, etc.).
Oftentimes, people frequently change jobs or have gaps in their employment history.
Having either these does not by themselves disqualify you from getting a loan.
AAA Capital Funding can help you overcome these obstacles and make homeownership a reality.
Regardless of your employment situation, AAA Capital Funding can help determine if you would be eligible for financing.
Many people make the mistake of thinking FHA insured loans are meant for only one specific type of borrower. Let’s look at myth 4; which is FHA insured loans are only for borrowers with low income, low credit scores, no money, or poor credit.
This myth is simply not true.
It’s often suggested that FHA insured loans are only for low-income borrowers who may have had credit problems in the past and may not have sufficient funds for a down payment.
The truth is that AAA Capital Funding and FHA insured mortgage loans are available to people from all walks of life.
AAA Capital Funding’s mission is to create strong, sustainable, inclusive communities, and quality affordable homes for all
AAA Capital Funding does not impose specific income guidelines or credit restrictions over and above what FHA, Fannie-Mae, and Freddie-Mac allows.
FHA’s single-family forward mortgage limits are set by the Metropolitan Statistical Area (or MSA) and County and are published annually. FHA sets these limits based on the median house prices for the area.
The takeaway here is that FHA finance options are available to everyone as long as they qualify for the loan amount.
You should call AAA Capital Funding so we can assess your financial situation to determine available options.
AAA Capital Funding is familiar with various HUD programs and other local community resources that may assist you in meeting your housing needs.
You can call us by phone at 954-390-7994 or 888-601-8344.
Many first-time home buyers still have student loans that they are paying off which they think will disqualify them from buying a home.
Let’s look at myth five; I have student loan debt so I won’t qualify.
Having a student loan does not disqualify you from obtaining a mortgage with AAA Capital Funding. The student loan will be considered when your application is reviewed as part of your overall financial picture. We may need additional information on your student loans if they are currently deferred in order to determine eligibility.
There are several ways we can handle student loans. A student loan may just be one component of your overall financial picture and by itself does not disqualify you from obtaining the home of your dreams. Do not let anyone else tell you otherwise.