It is common knowledge that saving for a mortgage down payment is strict, especially in the Beehive State, where property prices are rising steadily.
If you can’t consistently earmark a portion of your income for a loan’s upfront costs, you need to be super resourceful to milk every source of funds you can use without breaking the rules. The shrewdest homebuyers even turn to crowdfunding and still fail to raise enough cash.
Although you can find a lender who accepts a low down payment, you will be consequently charged with a higher mortgage rate in Utah. Aside from higher interest, you will have to deal with the larger principal and private mortgage insurance, which will bloat your monthly repayments.
As if saving for a down payment is not hard enough, you can be forced to cover a more significant portion of your property purchase for several reasons, including those below.
Thin Credit File
You can be a punctual payer or avoid debt as much as you can and still be considered not-so creditworthy. The traditional credit scoring system puts a premium on payment history and its age. If you have limited data, to begin with, a lender will likely demand a larger down payment, charge you more interest, or deny your application outright.
Fortunately, mortgage lenders are waking up to the value of alternative financial data. In other words, credit scores are no longer just based on installment loans and revolving accounts. Thanks to numerous fintech innovations, expect more and more lenders to factor in banking transactional information and rental data to their decisions.
Maximum Debt-to-income Ratio
Otherwise known as the DTI ratio, it paints the picture of a borrower’s financial capacity because it reveals the percentage of the income goes to repay recurring debts, including housing expenses. Generally, the magic number mortgage lenders want to see is 43%.
You might be lucky to find a loan program that allows a higher DTI ratio maximum, but such a privilege is not free. Like a limited payment history, you can be asked to put down more money at closing or absorb higher interest.
Between this ratio’s two components, the debt is more controllable. To keep your DTI ratio below 43% before applying for a home loan, settle many, if not all, of your debts to appear more reliable as a payer and less risky as a borrower.
Having a typical 9-5 job makes it is easy to produce valid proof of your income. The same can’t be said about the money you make from the gig economy. If you have a side hustle to supplement your regular, you might find it more challenging to prove your extra income without any paper trail or digital footprint. It is even worse if you work as a freelancer full-time.
If you are a gig worker, you may struggle to qualify for conventional mortgages and limit your options to fintech lenders.
You can’t take the advertised loan-to-value ratio minimum of a mortgage at face value. Since it is not a rigid requirement, a lender may be compelled to raise it not to make your life harder but to offset the risk of loaning you hundreds of thousands of dollars.