I used to tell anyone who would listen, the story of buying my house, how it changed my life; it’s why I started this site! My home made things possible that I never thought were possible. My house is so much more than shelter and has provided me with so many opportunities. I can remember going to bed thinking about money, worrying about bills, student loans, debt, and how awful a feeling that was to go to sleep with and wake up to every morning. I recall never thinking I could buy a house; it wasn’t for me, it was for other people, with more money and better credit.
Now, fast forward a decade, I tell anyone who will listen about homeownership as THE pathway to financial independence, wealth building and succession planning. I genuinely believe it is a way out of the cycle of paycheck to paycheck and an essential investment in oneself both financially and mentally, the dividends are enormous. Having a desire to help others in their journey to becoming homeowners, I consider what is preventing those who should buy from buying? The answer that I come back to is the same issues that plagued me for years before I bought my home- money, credit and information.
First is money- and not having enough of it. How do you save when you’re barely getting by now? It is crucial to have cash reserves when you are considering purchasing a home; however, there are down payment assistance programs to help you get over the hump. Consider a program like HomePlus if you have a minimum credit score of 640 and make under $109,965 you can qualify for between 1%-5% of the purchase price as down payment assistance. Programs like HomePlus need to be discussed with your preferred lender to see what you can qualify for and how it will impact your loan. If you don’t have a preferred lender, use the HomePlus lender directory to find participating lenders. You will still need to have a cash reserve for inspections, closing costs, etc. but you should discuss just how much you will need with your agent and lender- the answer might surprise you and there may be ways to ask the seller to assist.
Then, there’s the credit score- yes, this is important, but not everything. If your credit is 600 or below, consider choosing a credit score improving program like Quicken Loans Fresh Start, where you will have a counselor that helps you make the right moves to improve your score. The more critical factor is debt to income ratio- basically, your affordability ratio. “D to I” takes into account all your mandatory monthly bills (rent/mortgage, car payment, student loans, credit cards, etc.) vs. how much you bring in (wages and other income). Your lender can counsel you through your affordability and D to I ratio- your lender can advise you on how to improve your “D to I” as well.
The last component I believe preventing those with lower income and lower credit scores from leaping into homeownership is information. We can all google and have millions of answers at our fingertips, but sorting through the maze of sites and links is exhausting and often not specific to your circumstances. I genuinely believe the best advice on getting real, accurate information is to speak with a trusted Realtor- it is a Realtor’s job to explain the home buying process: contracts, escrow, inspections, appraisals, etc. It is also the job of a Realtor to point you in the right direction based on your needs and a good, experienced agent will have contacts to refer you to based on your needs.
If you have had a steady job for at least 18 months, have average credit and a little money in the bank, you should explore buying a home. It’s intimidating and it might drain your account, but in my opinion, the best way to invest in your future…and not to mention, stop moving every 6-12 months!
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Written by: Misha Renteria