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Strong credit makes it easier to land a loan

Date posted:  7/17/14 06:15:00 AM A good credit score can go a long way in helping someone land a mortgage.

Most Americans understand that a good credit score can go a long way in helping them land a mortgage loan. Similarly, a poor credit score can leaving many potential homebuyers out in the cold.
But what exactly is hurting the credit scores for the majority of Americans with poor credit?

According to Andrew Jennings, chief analytics officer at the credit score firm FICO, a large portion of shabby scores come from income stress relating to non-mortgage debt, such as student loans and credit cards.

"Clearly people are qualifying for less money now than they did in 2005," Jennings told MarketWatch. "Buried in there is this question of affordability."

Steve Brown, president of the National Association of Realtors, told MarketWatch that many first-time homebuyers are finding it especially difficult to obtain a mortgage loan.

"Mortgage expenses are higher, down payments are more difficult to achieve for first-time homebuyers," Brown said. "If you do not have a fairly pristine credit record, you are going to find it very challenging."

Steps to take in order to land a mortgage
While keeping a solid credit score will help a person obtain financing for a home, there are a few other steps a person can take in order to make the process a little bit easier.

Lenders want the safest investment possible, so it's crucial for homebuyers to steer clear of any major purchases before trying to get loan approval. It's also important for people to make sure enough money is coming in each month to pay for the loan.

Jim Parrott, a former counsel at the U.S. Department of Housing and Urban Development and a fellow at the Urban Institute, told MarketWatch many lenders are taking extra caution when considering to whom they will lend.

"It's the open-endedness of it," Parrott said. "[Lenders] just aren't sure what closure looks and feels like. It's really hard for them to quantify the legal risk."

One of the best ways to help prompt the loan process is by having a strong debt-to-income ratio. This means the buyer has enough income to take on a loan without struggling keep up with monthly expenses.

Many prospective homebuyers hope to include the income of a spouse or significant other in order to increase a home's debt-to-income ratio, but lenders will only let that fly if that person is also co-obliged on the loan, according to Credit.com.

But if someone does co-sign on a loan to improve a home's debt-to-income ratio, Credit.com reported they must also have solid credit, because a poor credit score coming from the co-signer could hurt a homebuyer's chance of acquiring a mortgage.

A few Colorado cities making it easier on first-time buyers
While it's no secret that buying a home is a tricky situation for many across the country, a few cities in Colorado are actually great destinations to make the initial homeownership plunge, according to WalletHub.

Looking at the affordability of homes, as well as the conditions of the real estate market in 300 of the nation's largest cities, Colorado had two cities finish in the top 10: Centennial was No. 8 and Thornton came in at No. 9.

But those weren't the only Colorado cities that proved to be welcoming for first-time buyers. Colorado Springs finished at No. 13, Longmont was No. 15, Fort Collins was No. 18 and Arvada rounded out The Centennial State crew at No. 19.

The five top-ranked cities on the WalletHub list were Broken Arrow, Oklahoma; Allen, Texas; Norman, Oklahoma; Frisco, Texas; and Plano, Texas.