Hurdles to Home Ownership
The Olympics are right around the corner…and we can’t wait to tune in! We figured we could stay on theme by discussing frequent “hurdles” to home ownership that those who want to buy have to get over before they can purchase a home. Luckily, we help people all the time get over these hurdles! So, consider us your “coach” when it comes to the home buying process. Let’s discuss what these barriers usually are, and how to get over them like hurdles, so you can be on your way to the finish line!
Credit Score
Ah yes…credit scores. They might not be everyone’s favorite thing, BUT they are important to the home buying process. Luckily, there are ways you can raise your credit score and practice smart credit behaviors, so that this particular hurdle ends up in your rear view mirror. Not only that, but you can use this information to actually wield the credit score in your favor, because the higher your score, typically the more options you have for loan programs, grants, and interest rates.
The credit score you should aim for ownership is above 680. You’ll yield the most competitive interest rate on some loan programs with above 760, but there are also loan programs that allow a credit score down to 640 (and sometimes a touch lower than 640). At times there are just a few small tweaks to raise your score, so don’t get discouraged!
You can start smart credit practices to raise your credit on your own time. Those practices include: the 30% rule (making sure you never charge more than 30% of your credit card limit), keeping your credit lines open as long as possible (avoid closing credit cards when trying to maximize your credit score), pay all your credit card bills on time, and avoid afterpay programs such as Klarna or Afterpay.
If your credit score does hover around 640, don’t let a lender discourage you! Your score isn’t the only factor in our decision to lend and your ability to repay – reach out and talk to us about it for the real answer!
Other Debts
People might assume that another barrier that is keeping them from buying a home is other types of debt and loans, such as car loans or student loans. As lenders, we do have to make sure you have a “healthy” debt-to-income ratio to qualify you for a home loan, but car loans and student loans don’t inherently keep people out of the market. If you are making enough money to responsibly pay off your other types of loans and have a comfortable amount to handle home payments and expenses, then these types of loans shouldn’t keep you from buying. However, we know this is easier said than done, because for a lot of people, it can be hard to save up for a home or get to that comfortable position if a large portion of their monthly income is going to other loans.
We help people all the time figure out their own financial situations and come up with scenarios that would put them in a better position to buy. Sometimes, we meet people who have a large sum of money to use for a down payment, but it could be used to pay off a car loan instead, which would actually put them in a better position to buy a home. There’s always a conversation to be had! Don’t assume this is a hurdle that is keeping you from the finish line, until you talk with a lender.
If you are serious about buying a home in the near future, just make sure you’re making your payments on time, and only purchasing cars and other items that you need and can comfortably afford!
The Down Payment
Speaking of saving up for a home…it’s a common misconception that you must put 20% down to own a home, but we’ve discussed ways that you can put much less down OR avoid the down payment altogether.
The loan programs that don’t require 20% down include VA, Rural Development, FHA, and even Conventional Loans. We can guide you on the one that fits you best!
The 20% myth has been perpetuated by people who either don’t know about all the wonderful loan programs available or think PMI (private mortgage insurance) is a bad thing when it’s not! PMI is typically not that expensive, and can help keep interest rates lower. Plus, it eventually goes away. It’s a better option than waiting even longer to get into the market if you can afford to buy now, but the mortgage insurance is holding you back.
Also, there can be state and local incentives for first-time home buyers that can help with down payment assistance and/or pay for closing costs and prepaid expenses! Your lender should know the ins and outs of those programs for you and what it takes to qualify.
So don’t let the down payment hurdle be the one that stops you in your tracks!
Interest Rates
There is a large focus on interest rates, and many people try to time the market to when rates will drop so that they can jump into the market at that time.
Unfortunately, the market is extremely difficult to time, many have tried and many have been wrong before. Plus, if rates ever were to drop significantly, all those people waiting on the sidelines would jump into the market at the same time as you and this could create an inventory issue, increased prices, bidding wars, and missed opportunities.
If you need a home now, or are ready to buy, don’t let the interest rate be the hurdle that stops you. It’s much better to get into the market now and get a home you can afford (regardless of the interest rate) than to continue paying rent to someone else and potentially having to compete in an even tougher market if and when rates drop. We all know rent isn’t getting any cheaper either!
We put an emphasis on overall monthly payment rather than interest rate. Can you afford the monthly payment? If the answer is yes, then you can afford the home, and could potentially refinance later if rates were to drop significantly.
Bottom line—the interest rate hurdle is more of an imagined barrier, just walk around it!
Home Prices and Inventory
It’s true that the average cost of a home across America has increased in the past couple years, and historically, homes (with some notable exceptions) are an appreciating investment, so the rising prices could be viewed as one of the largest hurdles to cross. However, that is one of the very same reasons you might want to get into a home now! Make the investment in yourself and your future, rather than your landlord’s.
When you work with the best partners (lenders like us and good realtors), we can help set you up so that you’re in a good position to buy something you can afford that you like and are comfortable with the monthly payment. You never know until you start working with partners who actually really want to help you and have your best interests at heart what is possible. There are areas that are cheaper to buy, and some really great loan programs and grants, so don’t let the “average” numbers scare you off before you even look.
If this hurdle is stopping you before you even get on the track, talk to your coach (us) to see what is possible.
Ultimately, all of these hurdles are possible to jump over, but it does take a bit of practice and training, and working with the best coaches.
That’s why we’re here! We’d love to help you win gold this year and purchase the home of your dreams!