Owning your own home has always been associated with living the American Dream – you find a job, start a family, then raise that family in a two-story house with a white picket fence. Problem is that nowadays more and more people are finding it harder and harder to live the American Dream.
Over the past three years, unemployment and tightened lending policies by banks have made it more difficult to purchase a home. Although it’s more difficult, there is still hope. You can still qualify for a home loan if you remember these important things:

Make Sure Your Credit Score is as High as Possible

When applying for a home loan, your credit history and credit score are a big deal. Typically consumers with a credit score above 750 will qualify for most loans as long as their income is able to support the payments on the loan. Credit scores between 600 and 750 can still qualify, but sometimes at a higher interest rate. If there are negative items on your credit report, you should look into getting them removed and repairing your credit before you start the process to qualify for a home loan.

Keep a Steady Employment History

Most loan programs require a steady employment history of between 6 months and 2 years. If you are thinking about changing jobs or starting your own business, you may want to wait until your home purchase is finalized before making the move. Once your loan closes, you can change careers without having it affect your loan.

Get Your Debt to Income Ratio Under Control

Mortgage lenders look carefully at your debt to income ratio. This ratio simply portrays the amount of debt payment obligations you have each month in comparison to your gross monthly income. A common guideline for debt to income ratios is 33/38. The first number means that no more than 33% of your monthly gross income should go to paying your mortgage payment. The second number means that no more than 38% of your monthly gross income should be spent on all of your debt payments combined (this includes your mortgage, credit cards, auto loans, etc.). If you need to lower your debt to income ratio, you may want to consider downgrading your car and buying something less expensive – at least while you are trying to qualify for a home loan. In addition, you may want to consider paying off your credit cards.

An FHA Loan May Be Your Best Shot at Qualifying for a Mortgage

If you don’t succeed at qualifying for a mortgage initially, there are additional means you can employ in order to qualify for a home loan. A common alternative to conventional home loans is an FHA loan provided by the Federal Housing Administration. Below are the basic requirements the FHA lists on its website:

- Two years of constant employment at without a decrease in income.
- A minimum credit score of 640.
- At least two years since a bankruptcy.
- At least three years since a foreclosure.
- A debt to income ratio of approximately 30%.

For additional details on qualifying for an FHA loan, click here.

If at First You Don’t Succeed, Try, Try Again

There are many resources available to consumers looking to qualify for a home loan. If you don’t get a positive response from the first place you look, keep trying. Also, plan ahead in order to make sure that you are the best candidate you can be by the time you show up at the bank asking for a loan.

Simply speaking, a reverse mortgage is a type of mortgage loan that is generally available to Americans who are over 62 years of age and who have equity in their home. The bank will lend you money based on the amount of equity you have in your home without you having to make payments so long as you reside in that home. This seems like a good deal right? There’s a catch — the loans accrue interest which is compounded and every time you take out more money in this manner your home loses equity and you lose more of your home ownership. With housing values steadily sinking across the nation, it’s very easy for the unwary to end up owing more due to a reverse mortgage than their home is actually worth.

This increased debt to income ratio can make it virtually impossible to get any other type of loan regardless of your payment history and other areas. Additionally, the interest continues to be compounded and as many individuals who take out reverse mortgages have limited or no income paying down these loans becomes impossible after only a short amount of time has passed.

The lack of required payments, rather than being a benefit turned out to be detrimental. The loan must be repaid, and in many cases ownership of the home will revert to the bank after the homeowner has died if these payments are not made in a timely fashion. This can mean that a surviving spouse or other dependents will be forced to make high mortgage payments or give the house up for foreclosure.

So when can a reverse mortgage actually be beneficial? It definitely depends on the circumstances. An older individual who has adequate income can use are averse to mortgage to improve his or her credit score if they are careful. Making timely payments and ensuring that the bank reports these payments can improve your credit history. These payments, although not required, will reflect a steadily decreasing balance on your debt which looks good to other potential creditors. Having a responsible repayment plan that you are able to stick to faithfully can help you to avoid the pitfalls of a reverse mortgage and take advantage of the flexible payment arrangements it affords. Otherwise, this type of mortgage may prove to be too risky to your overall credit health.