My 5-step guide to financing your Dream Home
I'm a firm believer in the American Dream - that you can do whatever with your life you want to do, it just takes some dreaming and hard work. I wholeheartedly believe it is achievable! My caveat to all this is, I also believe you need to own your own home in order for that to happen. "But why?" you say. Well, how are you really achieving your dreams when you're paying for someone else's or hell even paying off someone else's debt! I'm in this business because I want to help everyone get their American Dream, to include owning their own home.
So, how are we going to pay for it?! This was a question that I, myself, was scared of! I mean, even after years and years of working in this industry I still had a "they can, I can't" mentality when it came to financing and affording to own my home. I always thought you needed to have a 750 credit score and $20k in the bank. You don't, but here is what you do need to do to make owning a home possible.
1. Do a little pre-homework. At the very leastbefore you start perusing homes online, do yourself a favor and run a calculator to find out how much of a mortgage you can afford. There are a few good ones out there but my favorite is Bankrate.com's "How Much House Can I Afford Calculator". It asks you for all forms of income, how much you want to spend on a home and how much you think you'll have have for a down payment. Then it asks you about all your other regular monthly expenses and it will give you a high end of what it believes you could afford based on your Debt to Income Ratio alone. Now there's more that goes into being approved for a mortgage but this is the first step in helping you shop within a price range that is practical and feasible for you in the near future.
2. Pay down your debt. I highly suggest you completely pay off your credit cards. I have two thoughts on this: One is when a lender looks at your debt to income ratio you want to be carrying as little debt as possible to leave as much room as you can when they begin to factor in your potential mortgage payment. My second thought is by paying off your credit card debt you can easily accelerate your savings plan for that down payment and those closing costs.
3. Save up for that down payment! Okay, so when you were filling in that calculator on Bankrate, did you put in a realistic number for your down payment or were you just shooting for the moon? No judgement, I've done that. It's nice to dream! But once you've played with that calculator a little bit, I'm sure you came to the realization that you'll need some cash to put down towards a house. Depending on the type of loan you are looking to secure, your credit score, your employment status and a few other factors considered you could get a mortgage with a down payment as low as 3.5% for FHA or as much as 20% for Conventional Loans. If saving for a down payment is something you're concerned about, I suggest you take a look at some Home Buyer's Assistance Programs. There a few great ones for buyers in the Houston area. South East Texas Housing Finance otherwise known as the SETH Program is one. Also take a look at The City of Houston's Homebuyer's Assistance Program as well as Catholic Charities (you do not have to be Catholic to take advantage of their home buyer programs). All Buyer Assistance programs are going to require you to sit through some education courses but the payoff is well worth the effort.
4. Track your credit score. Okay guys, let's get out of denial here. I get it - someone called you in your dorm room, offered you a credit card and you maxed it out on fast food. It happens to the best of us. But never checking your score only guarantees that it will never get better. It's like trying to cook without ever checking the pot - doubt that will taste good! I suggest keeping an eye on it over at Credit Karma. It's not perfect, but it's better than being blind and it's free. To be eligible for an FHA loan with 3.5% down payment your credit should not be lower than 580. Yup, that's it. My tip here is, just by regularly paying attention to it, you're more likely to take little steps to boost it. Don't over think it! Every little bit helps.
5. Now here's the scariest step. If you think you've got your debt under control, your credit score is comfortably in the good range, and you have a few bucks saved in the bank for a down payment, you need to call a lender to get pre-approved. Y'all this was the scariest step for me too! I had all the negative thoughts moving through my brain... Negative thought #1: "But won't drop my credit score when they run it?" Yes, but it will not lower your score so significantly that you will no longer qualify. A single credit pull only drops your score by 3-5 points. That's not detrimental. Negative thought #2: "But what if they say I don't qualify, will that prevent me from ever qualifying?!" Oh come on! Of course not! A lenders job is to eventually sell you a loan! They want to get you that mortgage just as much as you want it. If they find things in your credit history or your income and debt that disqualify you right now, they will tell you what those things are and direct you to what you need to do better qualify in the future. My suggestion is to specifically seek out a mortgage broker, they are working with multiple banks and sometimes privately funded loans, too. This means they have more options available to help place you in a loan product that makes sense for your life and what you hope to get.
Guys, this isn't rocket science but if you are like I was in thinking "I'm not someone that can afford to own my own home" it can definitely be scary to move past that and into the house of your dreams. Now maybe your first home isn't the palatial mansion you were dreaming of, but once you own something, anything, you begin building your financial investment in your future. Y'all, I promise it's worth it!
Please feel free, if I didn't answer your questions here, leave a comment or give me a call or text. It doesn't matter to me if you're ready to buy or are just trying to understand this process. I want everyone to achieve this dream whether it's with me or not.