Becoming a homeowner at the ripe age of 28 feels like I’m a board certified adult with all my flabbers ghasted. The first sign of adulthood for me was to buy my own home printer and I’m yet to do that so this feels like I’m skipping steps. Nonetheless, I will buy my own printer and put it into my own new house that sweet black Jesus blessed me with (insert your favorite shout GIF).
While I know the hassles of homeownership will inevitably come, right now I am basking in my enjoyment of all the hopes, dreams, and visions I have to make my new house a home. With that said, please allow me, if you will, to position myself as an expert in an industry I know nothing about to give you unsolicited homeowner advice in a series we’ll call Benny The Homeowner (as you read that line, please respect yourself and respect me). Today, we’re discussing some of the financial prep you’ll need to do before starting your own home buying journey.
In the privacy (read as PREvacy) of your own heart and excel sheet, you might want to examine your finances, expenses, debt, and credit score. If you know that your finance is at that part of the cha cha slide that goes: how low can you go? Can you take it down low? Please keep renting. If you know your credit score is competing with the devil to see who’s the lowest, please go ahead and keep renting. I might tell you a joke but I’ll never tell you a lie so listen to me when I say this, the process of buying a home is costly. I do not say this to discourage you, in fact the opposite is true. I want to make sure that you’re prepared for what it takes and building your credit history, saving, and having healthy spending habits is crucial to buying a home in this seller’s market.
Is it possible to purchase a home without a high credit score?
Yes, of course anything is possible but at what cost? The higher the credit score, the lower the mortgage interest rate. The lower the credit score, the harder your chances of getting a good lender and the higher the interest rate will be. Any sensible person with your best interest at heart would recommend holding off on buying a home until you build up your score. There are tools you can use to raise your score and with consistency, in no time you can embark on that journey. Paying off credit card debt and maintaining a low monthly usage made a tremendous difference with our credit score and helped us save for the down payment. When we started saving, we also decided to go for a high yield savings account such as CapitalOne, Discover, or Ally Bank. That way our savings accumulated monthly interest that ultimately helped us save a bit faster.
Is it possible to purchase a home without putting down a large down payment?
Yes it is possible to buy a home without investing the traditional 20% down payment. In fact, many first time homeowners in this current market are putting down less (3-5%) but that also increases your monthly mortgage payment and you will have to pay mortgage insurance. There’s a lot of support for first time homeowners that you can take advantage of for down payment assistance. The resources are out there so if that’s something you need, please get off social media and research, read, and inquire. However with all the resources out there, it still is your home and you will have to spend money and this is where having a saving comes in. I highly encourage saving at least $15k before starting this process. Excluding down payment cost, you will still need closing costs, lawyers fees, inspection cost, and in some cases, even your realtor fees etc.
How much of a loan should I take for my home?
This depends on credit score, income, current expenses, debt (credit card, student loans etc), and it is ultimately determined by the lender. Generally speaking, It is recommended that your monthly mortgage be about 25% of your monthly net pay. Once you feel like you’ve done all the steps aforementioned, you would then have to reach out to lenders and get pre-approved. Quick reminder: do not reach out to realtors to show you homes if you haven’t been pre-approved for a mortgage yet. Please respect yourself and not waste the people of God’s time.
The lenders will ask for paperwork such as bank statements, tax returns, proof of employment, credit score etc. So if you know you’re an ambiguous entrepreneur with Atlanta Airbnb rentals without owning the rental property, or an online course that is off course, or my absolute favorite; a creative empresario like our good brother Moan on Pop The Balloon or Find Love; you might want to gather paperwork.
So are you saying we shouldn’t buy a home?
Buying a house is a beautiful journey but it is financially demanding and emotionally tasking. If at the end of every month you don’t have much left after all your expenses; then owning a home may be a stretch (unless you have some money saved). Consider starting this journey if it is: 1) something you desire because not everyone wants to own a home with all of the responsibilities that come with it. 2) if you are financially comfortable with your current expenses and have some financial wiggle room.
For those of you who are real-estate agents or have gone through this process before, please leave any additional insight for the financial prep it takes before starting this journey.
Yours Truly,
Benny The Homeowner
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