The Goal: Homeownership
Owning a home is a life accomplishment for most Americans, but the path to homeownership presents it own set of challenges. In the current “seller’s market”, prospective buyers are at a disadvantage because of limited inventory. Nevertheless, if your dream is to own a home all hope is not lost. Today on the ELP Budgeting Services blog, we’ve gathered a list of seven proven steps to accelerate the path to homeownership.
7 Steps to Accelerate the Path to Homeownership
1. Improve Credit Score
It is impossible to own a home without a favorable credit score. Credit scores also determine how much interest is paid on top of the principal amount. If a prospective buyer’s current score is unfavorable, the first priority should be credit repair. Work with a specialist to remove negative items, resolve delinquent accounts, and make on time payments. If the credit score is low due to length of history, let time do its job. Do not close credit accounts that you’ve had for a long time even if not being used. Time history improves scores. If the score is unfavorable due to low allowable balances, show you are able to manage what you have and then request an allowance increase.
The ELP Budgeting Services preferred credit specialist is Helena Richardson of Live Financially Fit.
2. Decrease Debt-to-Income Ratio
Once a potential buyer passes a credit check, next on a mortgage lender’s approval check list is the debt-to-income ratio. How much of your income is chewed up by debts owed? The more debt, the higher the risk of inability to pay the mortgage. Improve your chances of obtaining a mortgage at the best interest rate by decreasing debts owed. Get serious about debt cancellation through our Debt Cancellation Budgeting Program and prove to the bank you can afford the home.
3. Proof of Job Security
A mortgage lender needs to see that a potential buyer has the income to afford the home. Equally important as the income, is stability and job security. You’ll want to show at least two years of proof of income at the same employer. W-2 or salary income is also highly recommended. Self-employed, 1099 employees, or those paid under the table will have a very difficult time obtaining a mortgage in the current housing environment.
4. Save a Traceable Down Payment
While everyone knows you need money to put down on the home, not everyone knows the money must be traceable. For example, the bank wants to see regular and reasonable deposits into the accounts where the down payment is held. A random deposit of $20,000 could raise red flags and be denied as an acceptable source of payment. This also highlights the importance of using a bank account and not holding all the money in cash. Expecting a monetary gift towards the down payment of a home? Even gift money must be traceable. Mortgage lenders require certified documentation and investigation into the source of the gift money. Get serious about budgeting with our standard budgeting package and save, save, save!
5. Get Preapproved
Once the above steps are completed or in the final stages, obtain a mortgage preapproval from a prospective mortgage lender. A pre-approval is a preliminary assessment of the amount the bank will lend for the purchase of a home. They’ll consider credit and salary at minimum, but may want to know the debt-to-income ratio and expected down payment. The preapproval process may also highlight areas still in need of improvement prior to the actual purchase of the home.
6. Perform an Affordability Analysis
While a preapproval is the maximum the bank will lend, it does not mean a prospective buyer can afford this amount of house. A preapproval does not consider affordability of house associated expenses. An affordability analysis is essential in determining the actual monthly mortgage one can afford in conjunction with other monthly bills such as taxes and homeowner’s insurance. ELP Budgeting Services Affordability Analyses consider multiple scenarios with house related expenses to determine the ideal mortgage range a prospective buyer should remain within. We run best and worst-case scenarios so our clients can make well informed decisions. Furthermore, our Affordability Analyses prevent clients from making the biggest purchase of their lives only to find out the home is unaffordable after the deal is done. Want proof of their effectiveness? Click here!
7. Match with a Realtor
The right realtor is essential in the home buying process. You want a realtor that understands your wants and needs, is thorough, persistent, and knowledgeable. In the same token, trust your realtor! If you’ve done your research and obtained a knowledgeable realtor, let the expert do her job. Listen to the realtor’s advice about location, competitive offers, etc. Our clients who have followed these steps are a realtor’s dream. The preapproval and affordability analyses accelerate the home search process because the realtor is able to eliminate homes out of the price range. In addition, our clients are able to determine affordability with real numbers rather than guessing. It’s a win-win for the realtor-buyer relationship.
The ELP Budgeting Services preferred realtor is Eugenia Lawson. Contact her at firstname.lastname@example.org
Prepare While Waiting + Our Special Offer
The time to prepare for homeownership is before you think you’re ready to buy. By the time a prospective buyer is mentally and emotionally ready, they’ll also be financially ready using these seven steps.
Do you simply have the desire to own a home? Did these steps motivate you? Could you benefit from a personalized plan and path to homeownership? Check out our discounted limited time special offer here!