first time home buyer – owner loan

Melissa Kellett asked:


As a first time home buyer you may think that you don’t have enough credit history to get approved for a loan. However, mainly due to government regulations, private lenders can obtain tax benefits when they lend to first time home buyers. There are also government grants and loans for first time home buyers that will provide you with the finance you need.

Approval for first time home buyers has become increasingly simple but there are still obstacles to be overcome when you want to get a home loan for purchasing your new home. In order to understand what you need for getting approved you need to know how credit risk affects approval and how you can avoid this problem.

First Time Home Buyers Difficulties

First time home buyers seldom have a credit history long enough to create a pattern a lender could use to analyze their credit behavior. Having no credit can sometimes be worst than having bad credit. However, as regards to home loans this is not the problem as we will analyze when examining secured loans.

The real problem with first time home buyers is the lack of experience. Purchasing a home is not a simple process and unless you know which steps to take, it may take a lot more time than you expected. Proper preparation can solve this problem, so you need to gather all the information you can and learn about the legal an economic components of a home purchase.

Secured Loans: No Credit Is Overlooked

Secured loans are guaranteed with an asset which means that the risk involved for the lender is considerably reduced. The lender can always recover the money lent by taking legal action of repossession against the property to claim the amount owed. Thus, as opposed to unsecured loans, credit score and history is not so important.

Secured loans overlook the lack of credit of applicants as long as they can show proof of having enough income to cover for the monthly payments and closing costs of the loan. Nevertheless, since no credit implies a higher risk, those who lack a credit history will have to pay more interests than those who can show a good to perfect credit.

Co-Signer Further Reduces Risk

By providing a co-signer, the already lower risk implied in a secured loan transaction is reduced even more. A co-signer is at the same time responsible for the loan payments. When applying for a home loan with the aid of a co-signer, the interest rate charged for the loan is also reduced and the loan term extended to suit the applicants’ needs.

A co-signer makes a home loan approval even easier. The income requirement is easily achieved by an applicant if the co-signer income is also computed to see if the incomes reach the minimum required by law. Also, the credit requirements are more flexible as there are two people obliged by the loan. If either of them qualifies, both do.



Monica