I am certain you have heard people scream, “Do not buy a home. You are not ready.” However, now that I have sold my first home and have doubled my equity with my second home– all within a 2 ½ year timeframe– I would highly recommend taking the leap of faith! In this post, I hope to share what you will need, as well as set you up for any obstacles that might come your way.
I will not lead you on and say that the process was easy or will work for everyone, but there is absolutely no risk in starting the process and seeing what is viable in your current market.
I searched for a home in a buyers market, and I had excellent credit, along with proof of at least one year of stable income (you will need to submit your tax returns for the previous year!). While I had many good financial health indicators– cash-on-hand or in savings, was not on my list of strengths! I always imagined buying a house as something only people with large savings could do. Still, I soon realized that even with a very typical millennial budget and lifestyle, I had the qualifications to buy a house!
Are you read to be a first-time homebuyer? Your Preliminary Approval will tell you if you are or not!
Start by getting preliminary approval because you do not have to buy a house after being approved, but the information you receive is SO worth the effort!
I had very little cash on hand, and in my savings, I had an excellent credit score and low credit card debt, I had a reliable middle-class career, and I had a college loan (of under 15K). I always assumed that my “homebuyer bio” was not good enough to purchase a home. Still, after going to the bank and doing a comprehensive check on my home-buying qualification, I was given preliminary approval for a mortgage that was within the cost of most homes in my desired area!
I always recommend people to get preliminary approval because you do not have to buy a house after being approved. Still, the information you receive (what you can afford or what you will need to buy a home) is worth the effort!
To do this you will want to schedule an appointment at a local bank asking for preapproval for a mortgage. The bank will ask you to come to your appointment with a few documents. Once there, your bank will be able to provide you with a clear snapshot of what they would be willing to offer you in terms of loans for a mortgage. This is a great way to know if you have the chops to be a first-time homebuyer.
For example, if your preapproval is at a dollar amount that is much lower than the cost of houses in your desired neighborhood, you will know to wait a bit to buy a home. On the contrary, you might get a preapproval that is exactly what you were looking for. After your preapproval, your real estate agent will have a good understanding of what houses they should show you. You do not need to purchase a house just because you have a preapproval, but instead, it is a great tool in showing you if home buying is a wise investment.
You might be scared of the risks involved with buying a home, but remember, you don’t want to give up on:
The Opportunity To Gain Equity
Many Americans rely on their income as their sole safety net when it comes to anything financial. However, if an emergency happens, such as someone falling ill or an unemployment notice– many American’s find themselves drowning in debt or filing for bankruptcy. I knew that I had to diversify my worth, and building equity on a home was one way to begin that process.
The opportunity to take advantage of state incentives
Many states in America offer many incentives for first-time homebuyers. Many young buyers have no idea that they can actually purchase a home with no money down. In my state, there were incentives where I was able to buy a house with no money down, and the state would actually pay for my down payment, give me lower than market interest rates, along with many additional tax breaks and incentives. When I calculated all of the benefits, I realized that not only would I be able to buy a house with no money down, but I would also be spending less monthly to own a house than I was already paying for rent!
The opportunity to have independence
There is nothing more fulfilling and empowering than owning your own place and being able to design every room as your heart and soul desire. Unlike renting with its “no candles, no hanging anything, no painting, no fun” rules, as a homeowner, you can paint rooms in different colors, hang whatever you like, and light whatever seasonal candles your heart desires.
Next Steps for Home Ownership
Buying a home comes with risks, but nowadays, many millennials see so many financial difficulties that they don’t even consider, “can I actually afford a house?” If you based your “yes or no” on how much cash you have on-hand alone, then you are selling yourself short. I was in a similar boat, and with incentives, I was able to buy a home and renovate it with no cash on hand! Here are the steps that I recommend:
- Check your credit score and make sure you are above 650.
- Make sure you have low credit card debt (if you have a lot, spend the next few months intentionally bringing your debt ratio down!)
- Look at First-Time Homebuyer incentives or programs in your area. A can search for programs on google by searching your state name + First-time homebuyer incentives.
- Have at least 1-years worth of stable income.
- Ensure your loans are low (under 20K is ideal for someone with a middle-class income).
- If you meet 1-5, ask your First-Time homebuyer program for a Bank recommendation (pro-tip: You can speed up your application process if you work directly with a bank/lender approved by the First-Time Homebuyer program).
- Get Pre-Approved
- Take Classes on Home Buying/Investments/
- Work with a Real Estate Agent to determine fees and next steps!
- Search & Find yourself a Home you love!
New Homeowner Essentials: Long-Term Savings
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