Maybe you didn’t get the refund you were hoping for—or maybe you didn’t get a refund at all. Maybe this year, you were the one writing a check to Uncle Sam. Or maybe the tax season was just a scramble for missing documents and receipts gone AWOL.
Regardless of how this year’s tax season is hitting you, if you’re in the market to buy a house, you shouldn’t let tax time get you down. Even if everything didn’t go exactly as planned, you may still be able to qualify for your dream home.
Here’s what you need to know.
What do I need to get a home loan? (Hint: It’s not all about the down payment)
Buying a house isn’t just about saving up a huge amount of money to make a down payment. In most cases, getting a mortgage loan has a lot more to do with your cash flow and your credit history than your sheer amount of wealth.
Case in point: many first-time home buyers utilize a government-backed home loan program, like an FHA loan or a VA loan, to hop over that sometimes-intimidating barrier to entry. With an FHA loan, you may be able to have a credit score as low as 580 and still qualify for a mortgage that requires only 3.5% down—and with a VA loan, there’s no minimum required down payment and no minimum credit score (though most lenders who issue these loans tend to like to see a score of at least 6201).
Even conventional loans are available with a down payment as low as 3% for first-time homebuyers, though some lenders may have higher credit score minimums and borrowers must pay mortgage insurance1. To put that in perspective, 3% of a $350,000 house is $10,500—which isn’t nothing, of course, but is a whole lot easier to save up than the 20% down payment that has so long been considered the standard (which, in this example, would be $70,000).
All of which is to say: even if you didn’t get that refund you were hoping for, or your coffers aren’t quite as crowded as you’d hoped, you can probably still save up enough to get into the home-buying game. In fact, in some cases, you may even be able to use gift funds to cover those up-front costs, making the barrier to entry even lower.
Now, let’s talk about how to stack the odds in your favor.
How can I increase my chances of qualifying for a mortgage?
When mortgage lenders are assessing potential borrowers, they have one question in mind: will this person be able to make their payments on time and in full, and eventually repay the entire loan?
Six-figure sums of money aren’t nothing, even for a big bank—which is why mortgage borrowers have to go through the underwriting process. This is the portion of your mortgage application wherein the lender gathers and assesses all your various financial information. In short: they’re deciding how risky it is to lend to you.
So it’s in your best interest to put your best foot forward, which in this case means keeping your debt-to-income ratio (DTI) low and your credit score high. The good news: you can achieve both of those goals with the same basic financial habits.
For starters: if you’re in serious credit card debt, it’s a good idea to pay off as much of that as possible before going all-in on your home-buying journey. Credit cards can be a huge financial anchor, with compound interest making it easy to keep a revolving balance month after month.
By paying down your credit cards, you’ll not only lower your total amount of debt (which should positively affect your debt-to-income ratio), you’ll also likely improve your credit score, since total credit utilization is one part of the calculation. All of which is not to mention making it easier to make ends meet on an everyday basis.
Paying off other kinds of debt can be a big boon to your mortgage application process, too, as is ensuring you’re always making payments on time. Additionally, you’ll want to avoid applying for too many other loans around the time you’re planning to apply for a mortgage—not only because more loans = more debt, but also because too many inquiries at once can have a detrimental effect on your credit score.
Of course, proving your income is another important part of the qualification process, so you probably don’t want to lose your job right before applying for a mortgage (or at all!). Fortunately, though, there are loans out there for borrowers with irregular income, including Quontic’s Community Development Loan, or CDL1.
Our CDL does carry a higher down payment requirement—20%—but we accept up to 100% of that cost in gift funds. The upside: we’ll evaluate whether or not you qualify using a holistic assessment process that doesn’t require standard income verification documents, making it a great choice for freelancers, small business owners, foreign nationals, and more.
Our mortgage specialists can walk you through this product—and the others we offer—today. We can’t wait to help put the keys to your dream home in your hands, bad tax year or no!
1Quontic Bank is not affiliated with or acting on behalf of or at the direction of Veterans Affairs (VA) or any government agency or government sponsored entity. All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of March 30, 2022 & is subject to change without notice.