The Two Things That Prevent 75% of First Time Home Buyers From Buying

If you don’t work extensively with first time home buyers, you probably would not guess what the two biggest reasons that 75% of these transactions don’t move forward. Here they are: 

1)      The biggest reason is not bad credit (as most people in San Diego might guess) but too much credit. The majority of first time home buyer transactions don’t get past the word GO because the borrowers have already loaded themselves up to their eyeballs in debt. They’re dead in the starting gate with a blown-out debt ratio. It not uncommon at all for a first-time buyer to have a great big payment on a new car and four or five other maxed-out credit cards. There’s not much getting around debt ratio issues. All of that debt will show up right on the credit report and wind up in the numerator of the debt ratio calculation. Short of going Stated Income and grossly exaggerating income (which I won’t do) or going No Ratio or No Doc where income is not listed, the debt ratio will be sky high.

2)      The second most likely reason that many first time home buyer transactions don’t get off the ground is insufficient time of employment within the first time home buyer’s field. Lenders nearly always need to see two years on work history in the first time home buyer’s current field. Only No Doc income verification circumvents that by not listing any employment information on the loan application. The problem with No Doc is that this has the highest rates of any type of income verification and nearly always requires significant down payment.

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