Common Home Buying Hurdles and How to Get Past Them

Most buyers who get stuck run into one of a handful of problems. Each hurdle below comes with the steps that usually get you past it. If you have more than one, a free session with a HUD-approved housing counselor can help you build a plan.

What lenders want. FHA allows 580 with 3.5% down and 500 to 579 with 10% down, though many lenders set their own floor at 600 or higher. Most conventional loans start at 620. Many down payment assistance programs require 620 to 680.

How to fix it:

1. Pull all three reports at AnnualCreditReport.com and dispute errors with each bureau.
2. Pay credit card balances below about 30% of each limit, and lower is better. This is often the fastest way to raise a score.
3. Pay every bill on time from now on. Recent late payments hurt the most.
4. Don't close old cards or open new accounts while you are getting ready.
5. Ask a lender to run a "what-if" simulation that shows which payoff gives you the most points.

Many buyers can raise their score enough within a few months.

Your debt-to-income ratio (DTI) is your monthly debt payments, including the new mortgage, divided by your gross monthly income. Many lenders look for about 43% or less. Some loans go higher with strong credit or savings.

How to fix it:

• Pay off small debts entirely. A loan with only a few payments left may be excluded from DTI, so ask your lender.
• Look at a lower price range, or a home with lower taxes or HOA dues.
• Add a co-borrower whose income counts toward the loan.
• Use down payment assistance or a bigger down payment to lower the loan amount.
• Count every source of income you can document, such as overtime, bonuses or part-time work, usually with a two-year history.

How to fix it:

• Use a low down payment loan. VA and USDA require 0% down, conventional needs 3% for qualifying buyers, and FHA needs 3.5%. See types of home loans.
• Apply for down payment assistance. Grants, forgivable loans and deferred loans can cover much of the upfront cost. Search your city or state here, or read the down payment assistance guide.
• Ask for a seller credit toward closing costs. See the closing costs guide.
• Accept gift money from family. Most loans allow it with a signed gift letter and a paper trail of the transfer.
• Check your employer for housing benefits.

Student loans count toward your DTI even if they are deferred. Each loan type has its own rule for what payment the lender counts. Depending on the loan type, that can be your actual payment on an income-driven plan or a percentage of the balance when the payment shows as $0.

How to fix it:

• Get on an income-driven repayment plan and make sure the payment shows on your credit report or in your servicer documents.
• Ask lenders how each loan type would count your student loans. The answer can change which loan you choose.
• Look for programs aimed at buyers with student debt. A few states offer them.

Lenders usually want two years of self-employment or gig history, and they qualify you on the income shown on your tax returns. Large write-offs lower that income.

How to fix it:

• Talk to a lender before you file your next return, and weigh the tax savings against your buying power.
• Keep business and personal accounts separate and clean.
• Have a year-to-date profit and loss statement ready.
• If your returns understate your income, ask about bank-statement loans. Expect higher rates and bigger down payments.

If the appraisal comes in below the contract price, the lender lends based on the lower value, and someone has to cover the gap.

What you can do:

1. Ask the seller to lower the price to the appraised value.
2. Split the difference with the seller.
3. Pay the gap in cash, if you have it and still believe in the price.
4. Ask the lender for a reconsideration of value with better comparable sales your agent finds.
5. Walk away and keep your earnest money, if your contract has an appraisal contingency and you act before its deadline.

To protect yourself, keep the appraisal contingency in your offer, or decide in advance how much of a gap you could cover.

How to fix it:

• Get fully pre-approved, or underwritten if your lender offers it, rather than pre-qualified.
• Offer a larger earnest money deposit.
• Be flexible on the closing date or let the seller stay a short time after closing.
• Shorten contingency periods instead of waiving them.
• Look at homes that have been on the market longer, or slightly outside your first-choice area.
• Ask your agent to explain how assistance works in your offer. Some sellers worry it slows the closing, and a lender letter that confirms the program's timeline can help.

FHA, VA and USDA appraisals check basic safety and condition, so problems like peeling paint on older homes, missing handrails or broken systems may have to be fixed before closing.

How to fix it:

• Ask the seller to make the repairs before closing.
• Negotiate a price reduction or credit for repairs the appraiser doesn't require.
• Look at renovation loans, such as FHA 203(k) or conventional renovation loans, that finance the purchase and the repairs together.

A new car loan, a job change or a large unexplained deposit can stop a loan that was already approved.

How to avoid it:

• Don't open new credit, finance furniture or co-sign for anyone until after closing.
• Tell your lender before changing jobs.
• Don't move money between accounts without keeping records, and source every large deposit.
• Respond to document requests the same day if you can.