A PATHWAY TO PURCHASING YOUR FIRST HOME
February 11, 2020
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What are the steps necessary to Purchase your first home?
The Real Estate Market is growing throughout the United States, and the resources to buy your first home are abundant! The process to purchase a home can seem extensive and exhausting. This often leaves people frustrated; lost, and convinced that home ownership is unattainable. However, with the right tools, team of professionals, and resources, the pathway to home ownership can be accomplished.
Here are 5 Steps to owning a home:
Debt Negotiation and Debt Consolidation
One of the major obstacles of qualifying for a home is unpaid debt. Many people go through various hardships in life, and getting behind on debt is a common issue for many families. Fortunately, there are several companies and institutions that have programs to get mounting debt under control, and off your shoulders.
Two methods that help with large debts are debt consolidation and debt negotiation. Debt consolidation is taking out one loan to take care of multiple smaller debts. This is particularly helpful as most of your debts are credit cards (revolving debt) and this lumps it all together into an installment loan. This method makes repayment much more simplistic, and has less impact on your credit, while you take care of the accrued debt.
Debt negotiation is for larger debts that leave you unqualified for debt consolidation. Once you have missed several payments on a debt, it opens up the possibility for debt negotiation. There are several organizations that can negotiate these various debts on your behalf, and get the payments down. Sometimes the monthly payment can be as much as 50% less than your original payments. This method can save you several, if not hundreds of thousands of dollars. This process typically takes 24-48 months, and can have a temporary negative effect on your credit. However, once this process is complete you should be able to repair your credit, position yourself to be pre-approved for a home loan. A good resource for debt management is Betsy Britland at Freedom Debt Relief.
Credit Repair
Once you have your debt under control and caught up, you can now fix your credit. Credit is extremely important to getting approved for a home loan, and ensuring the affordability of your home. Your credit score plays a vital role in lenders deciding the interest rate you will receive on your loan; which translates to hundreds of thousands of dollars you could save over 15-30 years.
There are multiple reputable credit repair companies and professionals that can improve your credit, and borrowing ability. Clients will typically see an improvement in as little as 30-45 days, while using credit repair services. The main components of maximizing your credit is having 2-3 revolving debt accounts (credit cards), and keeping them around 20% or less. Having an installment loan, such as a car or home loan is also a component that can boost your score.
A very significant component is payment history, which can account for 35% of your score. Getting your payment history and credit file in order is the magic of credit repair. Credit repair companies can explore mistakes and mishaps in your credit history, and get the negative marks removed. As long as you follow the program, and the professional’s advice, they can increase your score significantly. A reputable resource for credit repair is Amy Martinez at Rising Point Solutions.
Ensure Affordability of Home and Expenses
After getting your debt under control or paid off, and negative marks of your removed and your credit score has improved (minimum FICO for financing is 500 with less than a handful of lenders. 640 FICO with great majority). You are now in a position to seek a pre-approval for a home loan. However, the step before seeking a home loan is to ensure your budget can handle home ownership in the short and long-term. There are several tools that will help you identify what expenses will be incurred, and what amount you should seek on a home loan to match your budget.
Two key tools are the mortgage calculator and an affordability calculator. Many banks, and companies have these tools available on their websites, and Zillow has both of these tools as well. However, a competent loan professional can also review your income and debt situation. These professionals can provide you with the metrics necessary to decide whether you can purchase a home. Metrics will cover what monthly housing expense will look like relative to your other debt.
Zero Down/ Closing Assistance Mortgage Loans
Another obstacle first time homebuyers run into is lack of funds for both, down payment and closing costs which combined can range from 3% to 15% of the sales price.
If funds to close on a home is holding you back from acquiring your first home, there are multiple state agencies offering both grants and community seconds. These agencies can help with down payment, and closing costs. In counties such as Tarrant, Collin, Dallas, Denton, Ellis, Hunt, Kaufman, Johnson and Parker, the annual household income limitation can be as low as $64,240 to as high as $96,151.
Similarly, sales price is capped in those counties to no more than $356,046. It is important to remember that these programs are designed to assist families to purchase a home. They all have household income limitations, minimum credit score requirements, as well as maximum sale price depending on the county. Reach out to a mortgage professional who can best identify the right program for you. Some lenders that offer these programs are Keller Mortgage, The Chisum Team at Gateway Mortgage, and Gina Escoto- Masters at Cardinal Financial.
Locating Home with Reliable Agents
The final step is finding a hardworking, knowledgeable, and trustworthy Real Estate Agent. They can locate your home, and walk you through the process. Many agents will want to garner your business, but you want the right fit so the process is smooth and simple. Making the right offer, and finding the right properties that meet your criteria are essential skills an agent must possess.
Great agents can help you find your home, and also help you locate many of the resources mentioned. They can help find reputable credit repair professionals, Mortgage lenders, and Down payment/ Closing cost assistance programs.
It is possible to locate homes on your own, through various means (For Sale by Owner, Rent to Own, and Owner finance from Investors), but you leave yourself exposed to bad contracts, and bad titles.
Agents will do the heavy lifting and locate your home. More importantly, agents will also handle the contract work necessary to close your home, and protect your investment! Two outstanding Realtors, I trust and have worked with are Edward Lopez from “The Brice is Right Team” at Fathom Realty, and Melinda Miller/ Dennis Miller at Keller Williams.
Summary
In summation, the pathway to home ownership is simple with the right tools and resources. It’s certainly not out of reach; if your aren’t in a good position at the moment, having a solid 2-3 year plan can put you in position to purchase your first home! A lot of agents would welcome getting to know you 3 year goals and help you get the resources required to purchase your home. Though most of the programs, organizations, and professionals mentioned are centered in the DFW Metroplex, the steps and processes should be applicable to many, if not most states. If you are in the DFW area and would like more information on the aforementioned resources, please feel free to contact us on our website!
- Rich Rogers