When it comes to buying a home, it’s easy to get intimidated. The purchase process is complicated, the amount of money being borrowed is usually substantial, and competition with other buyers is tough. Add in some of the persistent myths that are out there around buying a home, and it may seem like homeownership would never be possible for you to achieve. Why expend the effort if you’re just going to end up disappointed?
We’re not going to tell you that achieving homeownership is easy. But we are here to let you know that you don’t need to navigate the process on your own. The professional Homeownership Advisors that work with the Minnesota Homeownership Center offer their services to all Minnesotans, for free. We’re also here to debunk three persistent myths that keep many people from believing that homeownership could ever be possible for them.
#1 The Income Myth – I Don’t Make Enough to Afford Homeownership
How much money do you need to be making in order to purchase a home of your own?
The truth is there’s no specific answer to this question. While it’s true that you do need to have a steady source of income in order to qualify for a mortgage, the amount of that income is surprisingly less important than other factors such as your debt-to-income ratio and your credit score. In fact, depending on where you want to live, a monthly mortgage payment can end up being less than a monthly rent payment.
How can that be true?
A traditional mortgage typically consists of a loan, with payments spread out over 30 years. The home being purchased serves as collateral for the loan. In other words, the lender maintains an ownership claim on the home until you have paid off the money you borrowed from them for the purchase transaction. This facilitates risk mitigation for the lender, as they retain legal recourse to the funds extended to you in the event that you stop paying. Thus, a lender’s ‘trust’ in you is augmented by the ability to execute foreclosure proceedings if needed to recoup any lost funds.
The best way to explore whether your income is sufficient to facilitate the purchase of a home is to sit down with a professional Homeownership Advisor and have them show you what’s possible given your specific circumstances.
#2 The Credit Myth – My Credit Isn’t Good Enough to Get a Mortgage
How can you qualify for a mortgage if you have bad credit? The short answer is, you can’t. But this short answer doesn’t tell the whole story.
The truth is credit scores are simply a snapshot in time. They go up and down regularly based on actions you take. Most importantly, they can be improved if you know what to do.
The biggest mistake people make when it comes to fixing their credit is believing they need to pay for this specialized help. You should never pay for credit repair services, as they’re available to anyone, for free, through reputable non-profit community-based agencies.
When you engage this professional help, you’ll be guided step-by-step through a process designed to permanently address what’s holding your score down. Sometimes there are inaccuracies on your record that need to be challenged and removed. More commonly, there are one or two items that can be addressed directly in order to affect a substantial improvement.
Another problem is having ‘no credit,’ or a ‘thin credit file.’ New arrivals to this country encounter this the most, as they have not been here long enough to establish a credit record. Credit repair professionals, including our Homeownership Advisors, can guide you through establishing credit as well as repairing it.
#3 The Down Payment Myth – I’ll Never Be Able to Save 20% Down
With the median home price in the Twin Cities having hit a record high of $370,000 last year, a 20 percent down payment on the purchase of that home would be $74,000. It’s safe to say most first-time homebuyers would find coming up with that amount of cash a challenge, if not an insurmountable hurdle. And if you believe this amount is required in order to qualify for a mortgage, you might write owning your own home off as impossible and never give it a second look.
The truth here is that 20 percent down is not required. In fact, many are able to purchase their first home with as little as three percent down, thanks to special programs such as down payment assistance.
Down payment assistance can take many forms and has widely varying demographic and locational eligibility requirements. Most assistance is given in the form of an additional loan, with the proceeds either forgiven after a pre-determined amount of time or paid back upon the sale of the house. Navigating what programs are out there and available and how they differ from one another is extremely difficult, which is why enlisting the help of a professional Homeownership Advisor is so important here. Homeownership Advisors work in the down payment assistance arena every day and are thus able to navigate through multiple options and present the best available scenarios for their clients. They also know which lenders handle down payment assistance transactions best, which keeps your purchase offer competitive with the others out there.
The Minnesota Homeownership Center is here to remind you that all of these hurdles can be overcome with the nonbiased, one-on-one advisory services of our professional Homeownership Advisors – help that is easily accessible and available to everyone, free of charge.
For more information on the Minnesota Homeownership Center and its advisor and education services, go to www.HOCMN.org.
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