You Dont Need 20 Down and Seven Other Myths That Are Getting in the Way of Homeownership
You need to be well-established in your forever career
There has been a lot of discussion about how millennials are waiting longer and longer to purchase homes. As a result of their consequent struggle to save,nbsp;millennialsnbsp;are delaying major life milestones like getting married and buying a home, said Business Insider.
Nonetheless, there are still millennials jumping into the market because, even know their name isnt yet on the door, theyre excited to have a home in their name. Having a stable job, a comfortable salary, and the desire to own a home may just be enough.nbsp;
Sure, you might not be ready to buy the house of your dreams or move to the neighborhood where you can imagine raising kids and, someday, retiring, but that doesnt mean youre completely out of the game. A smaller place closer to work or an attached property can, quite literally, get your foot in the homeownership door and allow you to start earning equity.
You have to be completely out of debt
Recent data shows that nearly half of all undergraduates are delaying homeownership because of student loans. According to a recentnbsp;Federal Reservenbsp;study,nbsp;a 1,000 increase in student loan debtnbsp;lowers the homeownership rate by about 1.5, equivalent to an average delay of about 2.5 months in attaining homeownership, said Clever Real Estate. For the average college debt holder with 37,000 in debt, that ends up being about a 7.7-year delay in their path homeownership.
Regardless of your debt, whether its from student loans or credit cards, it may still be possible to qualify for a mortgage and afford the payments, especially because rents are often comparable to mortgage payments. Mortgage underwriters dont expect homebuyers to be debt-free; In fact, having no debt might actually work against you. They like to see responsible credit use and management.
You need to have a family
Yes, many would-be homebuyers hold off until parenthood is looming, because theyre not ready to move to the suburbs, get married, and have kids. But, a third of todays new homeowners are unmarried, according to CITYLAB. The shift is detailed in anbsp;new working papernbsp;from Harvard Universitys Joint Center for Housing Studies, in which researchers crunched demographic data from HUD and from American Housing Surveys taken every other year between 1997 and 2017. Perhaps the most notablenbsp;departure from 20 years ago is the marital status of new homeowners. According to the paper, the share of married buyers declined from 61 percent in 1997 to just over half by 2017. Meanwhile, 35 percent of first-time homebuyers in 2017 had never been married.
You need to be a man
There was a time when single women wouldnt even have considered buying a home on their own. That time has clearly passed. According to the National Association of Realtorsnbsp;2018 profile of home buyers and sellers, single women homebuyers outnumbered single male homebuyers bynbsp;2 to 1
You need a 30-year conventional loan
There are tons of different loans that can help you purchase your first home, make payments more affordable and/or give you the flexibility you need to make homebuying affordable. FHA loans are among the most well-known and most popular loans for first-time buyers because they require just 3.5 down and have low credit score requirements. Other loans worth looking into depending on your circumstances include: government VA loans for veterans; USDA loans for properties in rural areas; and loans like Fannie Maesnbsp;Home>
You need to have great credit
If your score isnt in the 800s, or even the 700s, it doesnt mean youre going to be living that apartment life forever. You might be surprised to see the credit score minimums for some loans. While there is no official minimum credit score for a home loan approval, the minimum FICO credit score for conventional loan approvalnbsp;tends to be around 620, said Credit.com.
It has to be your primary home
Some rich urban millennials are choosing tonbsp;rent in the city and buy a vacation homenbsp;instead of a primary residence, said Business Insider. Meanwhile, some other savvy investors are continuing to rent and plunking down money to purchase homes in tourist-friendly locations so they can take advantage of the AirBNB craze. According tonbsp;Priceonomics, hosts on Airbnb are earning more than anyone else in the gig economy and are raking in an average of 924 a month, said Travel amp; Leisure. Airbnb hosts make nearly three times as much as other workerswith some hosts making more than 10,000 per month.nbsp;
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Are You Buying For The Right Reasons?
In the push to buy, have you stopped to decide what is driving you into homeownership in the first place?
With this in mind, are you sure youre well equipped to buy whats best for you?
The U.S. Census Bureau census.gov, which recently >
Of the nearly 123 million occupied housing units in the US, almost 57 percent of them are owner occupied.
Although homeownership rates were highest in the Midwest 69.0 percent, homeownership levels have not statistically differed from rates a year ago in the Midwest, Northeast, and West.
Homeownership is valued and is a persistent trend, but not an escalating one. Existing homeowners bought for a variety of reasons over a wide time frame. Some love where they are and what they bought; some are disgruntled; some are planning to move again for reasons that matter to them.
What is your main reason for buying a house? That is, how will owning a home improve your life and that of your family?
Six Top Reasons For Buying A Home
Prioritize the following list of Six Top Reasons For Buying A Home to clarify exactly why you are buying real estate and how to do it well:
1: To Gain More Living Space
Has your family expanded or are you launching a home-based venture? Or, do you just love the idea of room to spread out, inside and outside? Space costs money, so if you want to keep costs down, smaller is better. How have you arrived at your desired square footage? Just following the pack or is it based on experience? Clarify whether you need more space for living and sharing or for storing your ultimately-expendable stuff.
Reality Tip: Good design is more valuable than square footage. Cleverly-designed traffic flow, room placement, storage utilization, lighting including windows and skylights, and interior decor including furnishings can make a small house feel like a spacious home. The more you learn about how good design pays off, the more effectively you can evaluate the true value of any property you view.
2: To Further Career amp; Income Development
If a location puts you near work, clarify how stable the employer and your job are. However, if mobility and career flexibility are essential to your chosen profession, buying a home now may not be the best plan. If career research confirms that you may have to move out of the area in a few years to get ahead, you might not recoup the cost of buying and maintaining a home in that short ownership period. Renting may be the best approach.
Reality Tip: If you love this location and hope to return to it when your career is established, buy now and rent out the house while your career takes you away. This property can function as collateral for buying more real estate and will provide income and equity-building potential. If you love the location, this strategy may keep you from being squeezed later out if area prices increase while youre away.
3: To Find a More Affordable Location
If all you can afford to do in your current area is rent, buying a home will probably require a move to a new area. How does that balance against commuting costs, work potential, amenities, and what you love about where you live now? Do the math: is it better to rent and save to invest, or buy elsewhere? Ideally, housing costs should be 30 to 35 percent of gross income. Have experienced real estate professionals fill you in on the benefits and realities of living in new areas youre considering. For instance, even if you dont have kids, local school quality will still have a big impact on how quickly your new location appreciates. Dont just wander around online. Spend time walking and touring the new areas. Before you invest time looking at a lot of houses, this complete reality check will let you know whether the shift to a less-expensive neighborhood or a move further out of town makes life>
Reality Tip:nbsp; To stay in the area that means a lot to you, you might consider the shift from a detached house to an attached townhome or even a condominium. Townhomes, condominiums, and lesser locations all tend to appreciate in value more slowly than detached homes and highly-desired locations, so consider the long-term costs of settling for less at the start.nbsp;
4: To Invest amp; Build Equity
Determined to improve your finances by investing in a fixer upper and building sweat equity through do-it-myself renovations? The savings can be amazing, especially if you buy the best location you can afford and take advantage of the value your improvements and location add. If you are not trained or experienced in construction, invest time locating contractors who deal fairly and who have a lot of on-the-job experience. You dont want to pay them to learn on the job. Cheap quotes and fast talk can be expensive in the long run. Recent home buyers hired a renovator to get the 30-year old home they bought looking good and to renovate bathrooms and the kitchen. That all went well, but serious problems with the foundation were glossed over by the renovator who had no experience with foundations and water issues, just decor. Those homeowners overspent on renovations and now have to refinance to tackle foundation repairs.
Reality Tip: Renovating a home yourself or hiring experts is very doable, but dont confuse what you want with reality. Because you have and want to spend only 30,000 does not mean your planned changes will cost 30,000. Take the time to cost out construction changes and include a healthy contingency fund for surprises. Once you agree in writing on renovation details with your contractor, avoid changes. Changes drive the budget up and dont always improve the outcome. You may benefit from investing time and perhaps a few hundred on a short consult with an interior designer or architect. Theyll fill you in on common renovation problems and usual errors before you start.
5: To Move Ahead In Spite of Everything
Have you stayed out of the real estate market because sluggish wage growth and increasing debt make your dream home seem less affordable every year?
Time for a redo of that dream. Search out a real estate professional who specializes in helping first-time buyers maximize their advantages to make a solid move into real estate. Thats the professional who is very interested in helping you buy well, so youll come to them when its time for you to sell and move up.
Reality Tip: In your mind, separate interior decor from building condition and design. Decor offers a superficial, and often do-it-yourself, fix while changes and improvements to the building can be expensive, but, done well, add space and utility. Buy real estate with solid bones and the best location you can afford. The rest is paint and imagination which can take place gradually as you get to know the building and what really works.
6: To Live More Green
Research will be your friend here. Technology and materials may be labeled green, but they are not always as effective as advertised. They may also be much more expensive. If you want to go green, make sure you know what you and everybody you hire are talking about. One home buyer opted for many environmental systems in his new build. He did not investigate installation requirements but >
Reality Tip: Environmental features can include building orientation, window placement, energy-efficient appliances, lighting, HVAC systems, landscaping for energy conservation, and long-lasting materials and technologies. A home office can be an environmental feature if it saves on commuting costs. The time spent talking to homeowners who have successfully created environmentally-sophisticated homes will be priceless. Learn from their mistakes and mis-spends, not yours.
Clarify why you want to buy a house and youll know what you need to investigate and understand before you start the actual search. This is how to guarantee youll make informed decisions about the best fit.
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Co-Signing? Consider These Points
The first is realizing what happens if someone you co-signed for defaults on a loan. A lender typically wont foreclose on a property until two or three payments are showing up as more than 30 and 60 days past the due date. A single late payment wont start foreclosure proceedings but more often than not when these payments become seriously delinquent the co-signer remains in the dark until things start to deteriorate rapidly. If you co-sign, make sure you get copies of monthly statements for the mortgage and monitor them closely.
Another thing to consider >
Opening up new credit accounts will also affect your credit balances. By co-signing on a mortgage, the new payment, including principal and interest, taxes, insurance and mortgage insurance when needed, will be tacked on to your own personal debt. Should you decide to apply for a new mortgage or other larger purchase on credit, the amount you currently owe can affect whether or not you can obtain an approval.nbsp;
Maybe a gift would be a better option? To help someone qualify by co-signing, youre just as responsible for the mortgage as the primary borrower. Instead of co-signing, and you have the funds available, consider providing some financial assistance in the form of a gift. This would lower the amount borrowed and make it easier to qualify. Providing a gift also leaves out any longer-term solution. Co-signing means youre on the existing note. A gift can help but doesnt affect your credit lines. And if you do agree to co-sign, ask if this would be a long or short term situation. Do the primary borrowers need help as it >
And one final note here about co-signing. If one or both of the primary borrowers has damaged credit, co-signing wont help. When there are multiple borrowers on the same application, lenders use the lowest middle credit score of all the borrowers. If your credit score is 780 and their qualifying score is 500, you credit wont help. The lender will use the 500 as the qualifying score and likely headed for a turn-down.
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