A home is likely the single largest investment you will make in your lifetime. It has enormous potential to build up your wealth over time. But did you know that even in a relatively unpredictable market, you can purchase a home? If you adjust your thinking and your vision, you can almost always buy something now. Let’s take a deep dive into the question: are you financially ready to buy a house?
The Type of Home That’s Right for You
Some common themes always emerge when talking with potential homebuyers about why they haven’t chosen ownership over renting. If you’re willing to do two things: ask questions and share information, you should assume that your chances of getting a loan are better than you think.
Share your plans and dreams with your lender, like if you plan to flip the home in two years. If you want to live in it for 10 years, say so, because it will make a difference in the type of loan your lender recommends. Don’t try to get a home or loan that’s beyond your means and be flexible about your goals. You’ll build equity and wealth much more quickly if you buy a home you can comfortably afford.
The terms starter home and moving up exist for a reason because a first home is rarely your dream home. The condo you buy as a single young adult is unlikely to be the home in which you will welcome your children or possibly grandchildren. You can find a starter home, though you may have to accept less square footage, or commute a little further than you planned.
There’s a common assumption 20% of the purchase price as a down payment is required when buying a home. Usually used in online calculators for solid estimates of affordability, the 20% down payment model is outdated. Several loan programs with various down payment requirements exist, many of which are geared to first time homebuyers. In most cases, if you put less than 20% down, your lender will require you to have Private Mortgage Insurance (PMI).
Poor or No Credit
Your credit score certainly is very important helping you obtain a low interest rate. However, a rocky credit history won’t prevent you from home ownership. If you pay your bills on time, keep doing so. If you haven’t, now is the time to make the adjustment so when you do go to buy a home, whether that is in a month or a decade, you will be in a position to buy.
Almost as important as paying bills on time is the length of time you have established credit is as well. Keep your oldest credit card open even if you no longer use it. You want your credit history to be as long as possible.
If you think you won’t qualify for a loan because of past or current financial circumstances, like you weren’t so great at paying bills while you were in school, be honest with your lender. Start a conversation with a lender now to see what your options are to improve your credit situation. If you are thinking of making a home purchase soon, avoid opening any new credit accounts nor make any large purchase with an already open card. Wait until after you’ve moved into your new home.
Your mortgage payment may be equal to, or perhaps even less than your current rent. Consult with a trusted financial advisor to walk you through the options. You may even be able to take on a bit more than you think you can afford due to the tax breaks of homeownership.
Focused on their bottom line, landlords want to make money on their property from you as a renter. Because they see you as a profit maker, rental rates are subject to increases at the landlord’s discretion. But you’re investing in yourself and your family when you purchase a home. When you own, you know what your mortgage payment will be for the period of the loan. Also, mortgages end whereas paying rent never does.
Golden State Mortgage Can Help
At Golden State Mortgage, we are a California-based mortgage company. We want to help you through every step of financing your new home. Fill out the quick contact form or call Golden State Mortgage today at 1-800-536-8171 to speak with one of our California mortgage specialists and get a free good faith estimate.