Renters, take heart. You too CAN buy a house, even in our relatively pricey DC market. In talking with people in their 20’s and early 30’s, we often hear their reasons for why they have not delved into the real estate market. Some common themes always emerge, which we’d like to address. So keep reading as we debunk the top five reasons why people THINK they cannot buy a home.
1) “I don’t have a 20% down payment!”
Most people assume that you need 20% of the purchase price as a down payment when buying a home. Not so! The concept of the 20% downpayment is very outdated.
In fact, more than a quarter of all loans this year had a 3% or less down payment!
Countless loan programs with various downpayment requirements exist; many are geared to first time homebuyers.
So you know for downpayment purposes.….Uncle Sam will allow you to tap into your retirement funds (up to $10,000 per individual) to put towards a downpayment? Just be sure to use these funds within 120 days. Be sure to talk to a financial professional if you do wish to take advantage of this option.
Just keep in mind if you do put less than 20% down, your lender will require you to have Private Mortgage Insurance (PMI). Yes, it is another cost, but it is a tax deductible one.
2) “My credit history is less than stellar…(or non-existent)”
While your credit certainly is very important important and can help you score a better interest rate, a rocky credit history does NOT lock you out of home ownership. Our best advice on this front: if you have been paying all of your bills on time – keep doing so! If you haven’t, now is the time to make the adjustment so when you do go to buy a home, whether that is in a month or a decade, you will be in a position to buy.
Keep in mind, the length of time you have had established credit is almost as important as paying bills on time. Be sure to keep your oldest credit card open even if you no longer use it. You want you credit history to be as long as possible.
Lastly, do not take on any new debt (for a new car or engagement ring, for example) if you are thinking of making a home purchase soon. Wait until after you’ve settled on your new home!
Start a conversation with a lender now to see what your options are to improve your credit situation.
3) “I can’t afford a monthly mortgage payment!”
We hear this one time and again. But guess what? Your mortgage payment may equal, or perhaps even less than your current rent!
You may even be able to take on a bit more than you think you can afford due to the tax breaks of homeownership. Consult with a trusted financial advisor to walk you through the options.
Rental rates are subject to increases at the landlord’s discretion. When you own, you know what your mortgage payment (or the range it will roughly be) will be for the period of the loan. Also, mortgages DO end; writing rent checks never does!
Remember, landlords are trying to make money on THEIR property from you as a renter. They are focused on their bottom line and see YOU as a profit center. When you buy a home, you are making money for and investing in YOURSELF. Wouldn’t you rather build up your own wealth rather than a landlord’s?
4) “My job history is a little checkered….”
In a perfect mortgage world, you have had relatively consistent employment over the last two years, which is the time span on which your lender will focus. If you’ve held multiple jobs or had gaps in your employment history, fret not. Usually, your lender will then ask for a written explanation detailing the changes or gaps (if you pursuing your education or in the military, that won’t be counted against you!).
On a related note: if your salary is dependent at least partially on commission and/or bonuses, talk to your lender. Together, you can find a monthly payment that you’ll be able to comfortably manage.
5) “I can’t afford to buy the home I really want, so why bother?”
99.9% of the time, a first home is never your dream home. The terms “starter home” and “moving up” exist for a reason! The condo you buy as a single millennial is very likely NOT the home in which you will welcome your grandchildren, or even your first born! You may need to adjust your thinking and your vision, but you can almost always buy SOMETHING now. You may need go a little further out than you planned or manage with less square footage, but you CAN find a home you will love!
THE BOTTOM LINE
In our nearly 25 years in this business, we’ve consistently told our clients that buying is almost ALWAYS a wise choice and a solid investment. Though real estate values do fluctuate, over the long haul, you WILL see a return on your investment. A home is likely the single largest investment you will make in your lifetime. It has enormous potential to build up your wealth over time. The sooner you make this investment, the better!
Contact us today if we can help you think through your options and set aside hesitations you may have about buying a home!
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