57% of non-owners believe it would be at least somewhat difficult to become a homeowner.
I have had my share of first-time buyers with reservations about the process of purchasing a home. I can even recall my own fears of purchasing a home; and after hosting multiple home buyer seminars and several coffee chats with prospective buyers, it has become evident to me that the majority of us share the same concerns. Concerns that are valid, but in most cases are easily overcome.
When prospective buyers come to me for an initial consultation, I do a brief interview to assess their readiness. We discuss the process step by step and we talk about the minimum requirements. At the end of the consult, I would have determined if the individual is ready for the next step. This is the step where they have to speak to a lender and get a pre-approval. Normally after a successful consultation you would expect a buyer to be more at ease, however in the case of home buying this is the very moment where I can see the doubt and concern .
Although we have verified that the credit rating they are reporting is at the optimal range not only to get a pre-approval but to also qualify for down payment help, for some reason, they are paralyzed to make this next move. As we talk and unravel their fears, I realized that there are three main issues that get in the way of most buyers mentally. The first issue is the concern that it is too good to be true that their credit is good enough, the second is the fear of a large down payment and the third is they just assume the process is going to be difficult or cause a lot of frustration.
Again, these are all valid fears, and very important when buying a home. As a matter of fact, credit alone raises fear in the hearts of even the most responsible consumer. Apps like credit karma can be found on most smartphones in the US. Americans today are more knowledgeable about their credit scores and credit profile than they were 10 years ago. But does this newfound knowledge bring on an extra level of false fear for today’s buyers? I definitely understand why coming up with a down payment can be terrifying. It can be hard trying to put aside reserves for a dream home in today’s economy and couple that with the typical down payment amount, makes it sound even more impossible. In 2019, the median down payment on a home for a first-time home buyer was 6% of the purchase price. This may seem affordable but when we are talking about purchases in the hundred thousands, 6% is a pretty significant number.
The home buying process has many steps, tasks and requirements and there are many choices buyers have to make that definitely have the potential to keep them awake at night. The most common questions and concerns are: Will I lose my EMD? Can I trust the real estate professionals that I have hired? Are mortgage rates competitive right now? What will life after the loan be like? Admittedly, these are some pretty valid concerns, but I would like to help ease your mind.
It is true that credit is a major determining factor if someone will be able to obtain a mortgage loan. If you have had some challenges with paying your accounts on time, it’s safe to say your credit has been impacted. However, there are several factors that go into finalizing your credit rating, and acceptable credit scores fluctuate between lenders. If purchasing a house is the goal, then the best position to be in is knowing the necessary steps to take. In order to plan effectively, you need facts. You need to know where you stand from a mortgage lenders’ perspective. The best lenders don’t just approve or deny an application; rather, they will counsel you on the next move to make no matter if you’re pre-approved or not. Credit repair is unique to every individual and if you’re not pre-approved, a lender will tell you the areas that are affecting your rating the most.
Once you have spoken with a lender and know exactly which areas are causing the most harm, you will be able to come up with the quickest and most efficient way to get your score where it needs to be. Also, lenders do not just use the score from one credit bureau, they have a formula for calculating your score and it includes the ratings from all three credit bureaus to make up your mortgage lending credit rating. Your mortgage lending credit rating is different from the score you see on credit monitoring sites such as Credit Karma. In fact, your score could already be exactly where you need it to be. You will never know until you sit down and discuss with a good lender.
We all know that coming up with a down payment can be challenging, especially if you have not been saving over the years; however, many first-time home buyers purchase their dream home with little to no money down. How is this possible? It’s simple! Some loan products such as VA loans cover the down payment, plus a good lender has the ability to offer down payment assistance through programs that provide grants to cover some of the costs on closing day. It is also not uncommon for your agent to ask the seller to pay a portion of the closing costs during negotiations. These factors can drastically reduce the amount you have to bring to the table. My last client who purchased a $450,000 home came to the table with no money down and left with the keys to her new home and a check of $1000.00. I agree that the thought of coming up with $10-$20K down may seem overwhelming but the right team is going to pull all the stops to minimize what you need to bring to the table. Just like with knowing your mortgage credit rating, there is no way to know how much closing help you will get if you don’t take a step forward and reach out to a lender.
As mentioned earlier, buying a home can sometimes be intimidating as it requires a lot of decision making right from the start to the finish line. These decisions can sometimes be scary and you may be anxious about making an expensive mistake, this is where your Realtor comes in. A good Realtor has years of experience that will help them see a problem even before it arises, so that it never becomes a problem for you. The best way to have the smoothest home buying process is to hire a realtor that educates you on the process. With a good understanding of what is expected at each stage of the process, you won’t be afraid to make the necessary move. Most Realtors will have a Home Buyer’s Guide that will walk you through the process. And knowing what to expect will also help you see the same red flags your agent is looking out for. Knowledge is empowering and the more you know, the smoother your transaction will be. With proper planning and budgeting, life after the closing can be sweet and comfortable.
In most cases, home owners pay less than renters and don’t have to worry about their mortgage payments going up each year like rental rates do. And if your mortgage payment is greater than or equal to your current rent, remember that each payment to your mortgage is also helping you earn equity in your home that can be liquidated down the line, whereas your rental payments are adding equity to someone else’s investment. And if the idea of maintaining a property is a big deal to you, your agent may suggest a condo, which has all the benefits of owning with the conveniences of renting.
Educate yourself, vet the real estate professionals you hire, budget, plan and be patient, and I promise you will make it to the housewarming!
So, as you can see, it is true that purchasing a home can be challenging and may even require some planning and budgeting on your part, but anyone who wants to own a home surely can. Your success will depend heavily on your mindset, your game plan, and the team you secure. Don’t let the thought of buying a home scare you. Educate yourself, vet the real estate professionals you hire, budget, plan and be patient, and I promise you will make it to the housewarming! Happy home buying!