Is Homeownership Right for You?
To begin your journey toward homeownership, it is necessary to get a basic understanding of the process and some general terminology so you won’t feel so lost when talking to the professionals in the real estate industry. In addition to this basic understanding, it is also very helpful to look inside yourself and evaluate your wants, needs, and ability to purchase a home.
Are You Buying a House or a Home? As you read and study about buying real estate, you will often find the words "house" and "home" used interchangeably. There is a huge difference between a house and a home. A house can be a place to eat, sleep, park your car, and put all your "stuff" (including other family members). It is a material possession and an investment. A home is where you feel comfortable, warm, safe, and protected. A home is where you live.
A house is something you buy logically. A home is an emotional purchase. When buying real estate you have to balance your emotional wants and your logical needs because there will almost certainly be a time when the two conflict. For example, you may want a house with a view, but the payment is higher than you feel comfortable with on a thirty-year fixed rate mortgage. What do you do? Purchase the house anyway and budget more carefully for the next few years? Buy the same house without the view and get it cheaper? Make a larger down payment by borrowing from your 401K or family members, so you get a lower payment? Get an adjustable rate mortgage with a smaller payment instead of a fixed rate loan? Or buy a smaller house and still get the view?
When viewing the house, most people look at it emotionally and envision it as a safe, happy, comfortable home. Later, when making the offer or filling out a mortgage application, your logic may begin to kick in, instead. That's when "buyer's remorse" may come up, but...that's a different article.
The trick in buying real estate is to view all decisions with both a logical perspective and an emotional perspective. If a situation presents itself that requires a trade-off, decide on whether there is a huge conflict or a small one. Logic should win the big conflicts, but emotion should always be a factor, even winning the small ones. You will find yourself owning a warm, happy, safe home – and an investment for the future at a price you are willing to pay.
Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. And even more has changed in the last 20 years. More recently, the housing “bust” has caused lenders to tighten lending requirements and qualifications but this doesn’t mean that you cannot get a home loan. There are down payment assistant programs and government insured loans that make it possible for you to achieve homeownership. What used to close the door to homeownership may not be a factor today.
Here are some common homeownership myths:
Myth: You need great credit to become a homeowner.
Fact: You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time.
Myth: You need to put 20% down to buy a home.
Fact: There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.
Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact: If you're a legal resident, you can purchase a home in the U.S.
Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.
Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared.
Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency and fall behind, it's possible to keep your home and get back on track if you contact your lender early.
Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income.
Buying a home is the largest purchase most people will ever make. Homeownership has great benefits but also comes with certain responsibilities.
Are you ready for homeownership? Look at your current situation and determine if:
- You have a continuing and reliable source of income prior to applying for the loan.
- You have a credit history that shows you're ready for homeownership.
- Your total debt is manageable and you can afford to take on the costs associated with homeownership.
- You have money saved for a down payment and closing costs.