You too can buy a house, even in a relatively unpredictable market. Talking with first time homebuyers in California, they often say their reasons for why they haven’t chosen ownership over renting. Some common themes always emerge, which we discuss below.
I don’t have a 20% down payment!
Most people assume that you need 20% of the purchase price as a down payment when buying a home. This isn’t quite true today. The requirement of the 20% down payment is outdated, and usually used in online calculators for solid estimates of affordability. Several loan programs with various down payment requirements exist, many of which are geared to first time homebuyers.
For down payment purposes, the government will allow you to tap into your retirement funds, up to $10,000 per individual. Just be sure to use these funds within 120 days. Talk to a financial professional if you do wish to take advantage of this option. Just keep in mind if you do put less than 20% down, your lender will require you to have Private Mortgage Insurance (PMI). Yes, it is another cost, but it is a tax deductible one.
My Credit History is Poor or Nonexistent
Helping you score a better interest rate, your credit certainly is very important—but a rocky credit history does not completely prevent you from home ownership. If you have been paying all of 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 in California, whether that is in a month or a decade, you will be in a position to buy.
Keep in mind, the length of time you have established credit is almost as important as paying bills on time. Be sure to keep your oldest credit card open even if you no longer use it. You want your credit history to be as long as possible. Be willing to provide basic information your lender needs such as income, debts and obligations such as child support or student loan.
Come clean about any problems you think you may have getting a loan. If you weren’t so great at paying bills while you were in school, you may have hurt your credit rating. Tell the lender that you may have possible derogatory items, and outline what you’ve done to repair the damage. Start a conversation with a lender now to see what your options are to improve your credit situation.
Finally, do not take on any new debt if you are thinking of making a home purchase soon. Wait until after you’ve settled on your new home.
I can’t afford a monthly mortgage payment
This is perhaps the most commonly spoken sentence to lenders. But guess what? It is possible that your mortgage payment may be equal, or perhaps even less than your current rent. You may even be able to take on a bit more than you think you can afford due to the tax breaks of homeownership. Consult with a trusted financial advisor to walk you through the options.
Remember, landlords want to make money on their property from you as a renter. They are focused on their bottom line and see you as a profit maker. When you buy a home investing in yourself and your family. Wouldn’t you rather build up your own wealth rather than a landlord’s? Rental rates are subject to increases at the landlord’s discretion. 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.
My job history is a little checkered
Relatively consistent employment over the last two to five years is optimal when you’re looking for a mortgage in California, and that’s the time span on which your lender will focus. If there have been multiple jobs or had gaps in your employment history, this doesn’t automatically remove you from the lending process. Your lender will usually ask for a written explanation detailing the changes or gaps. If you have been in the military or college/university this does not count against you in any way. If your salary is dependent at least partially on commission, bonuses, or tips, talk to your lender. Together, you can find a monthly payment that you’ll be able to meet comfortably.
I can’t afford to buy the home I really want, so why bother?
A first home is rarely your dream home. The terms “starter home” and “moving up” exist for a reason. The condo you buy as a single millennial is unlikely to be the home in which you will welcome your children or possibly grandchildren. You can almost always buy something now if you adjust your thinking and your vision. You may have to manage with less square footage, or commute a little further out than you planned for—but you can find a starter home.
For all these reasons, you should assume that your chances of getting a loan are better than you think, but only if you’re willing to do two things: ask questions and share information. Share your plans and dreams. If you want to flip the home in two years, say so. If you want to live in it for 10 years, say so. These factors will make a difference in the type of loan your lender recommends. Be flexible about your goals and don’t try to get a home or loan that’s beyond your means. You’ll build equity and wealth much more quickly if you buy a home you can comfortably afford.
Though real estate values do fluctuate, you will see a return on your investment. 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.
Golden State Mortgage Can Help
Look for a lender who is willing to take time with you, like Golden State Mortgage. Be upfront that you’re a first-time buyer and that you want to understand the process better.
Golden State Mortgage is a California-based mortgage company specializing in new home purchases and mortgage refinance. Whether a FHA, VA, or USDA Loan, we have you covered with loan options for almost every lending need. With in-house underwriting, we can make fast decisions—and, we strive to close all loans in 28 days or less. Low Rates. Low Fees. Fast Closings—Call Golden State Mortgage today at 1-800-585-6886 or fill out the quick contact at https://goldenstatem.wpengine.com to speak with a mortgage loan consultant to get a free good faith estimate.