Everyone wants to purchase a house and buying home is considered the American dream. However, not everyone is ready to buy a house and here are some things you might want to give some consideration to as it pertains to whether not you should or should not buy a home.
You must have a financial backing in order to purchase a house, a blend of cash, credit, and income. Buying a house is sort of like making cookies as it relates to getting mortgage financing. If you throw in too much sugar or too little chocolate chips the cookies aren’t going to come out right. Same goes for mortgage financing if you’re deficient in 1 area it’s just not really going to work for what you’re trying to accomplish. You loan not going to come out right, like baking those chocolate chip cookies, you want them to come out just right.
You don’t have a down payment:
The reality of it is that you need to have a down payment. Ideally a down payment plus closing costs but at least the down payment. Not in all, but in most markets, you need to have at least $20,000 to play with. It depends on what area primary you need, if you’re looking in Sonoma County California you need at least $20,000 if not $25,000 or more to purchase a house. Wherein other markets you can get away with as little as $15,000 or maybe even less depending on the average price to down payment. Assistance programs that are out there contain higher interest rates, and that’s just getting financing that’s not to mention getting into contract on the house which offers a whole another host of challenges.
You’ve only been working a second job recently:
Let’s say you work 2 jobs, if you don’t have a history of working 2 jobs simultaneously for the last 2 years that additional income cannot be counted. If you don’t need the additional income, it’s not a problem and your primary job income can be counted but a secondary job must have a 2-year simultaneous history showing that you can sustain dual incomes.
You just became self-employed:
You left your cushioned corporate job, you’re self-employed you’re making tons of money, but your business is in its infancy this is going to be a problem. Going from a reliable job to a self-employment job even if you’re making lots of money is good to be an issue for nearly every mortgage loan program out there. Going the other way from self-employed to W2 is a different story.
Your self-employed and you’re writing everything off:
This is a big one. Just because you can write everything off from a tax standpoint doesn’t necessarily mean that you should writing off all your expenses against your income will save you money with IRS, but it will work against you when it comes time to apply for mortgage financing. Pay the taxes that you owe stop being clever. That path will not lead you to where you want to be in support of using mortgage financing to buy a home.
You don’t have a payment buffer:
You might not get the house for what you’re willing to spend on it, you might get a counteroffer and the payment difference could swing your buying power by one to $200 a month. You must have at least a $200 a month payment buffer when you’re evaluating a house versus a house payment. If you don’t want to buy a house or if you’re prospective buying a house is going to go out the window because you’re not willing to take on an extra $200 a month for example you probably shouldn’t be buying a house at all, and you should work on saving money for a down payment and/or working on your income.
Your credit score is rough:
The good news is most but not all mortgage banks will do low credit score loans. The FHA will go down to a fico score lowest of 580 and conventional mortgages recently announced they will go as low as a 600-credit score. You are hearing that correct for conventional loans. This is huge! Your credit score needs to be low to be in this category and if that’s the case, expect a difficult process it’s not easy but nothing worth getting in life ever is and those credit scores are doable for home mortgage financing. Be prepared to put down a larger down payment, be prepared for more questions as they pop up in the process and be prepared to pay a higher interest rate and higher fees if your credit score is in this territory, most mortgage companies for ultra-good interest rates typically have a 700 or better credit score associated with them.
Your expectations are inconsistent with what the market supports:
You want a $500,000 house for 3 bedrooms 2 baths on 2 acres of land out in the country, with a 2-car garage and a swimming pool where the average priced house is $650,000. See the difference? The expectation in support of what the market might support in your area in which you’re looking for inconsistent. It doesn’t mean don’t buy a house because what you want might not be there but what it does mean is adjust your expectation and purchase a house that’s within your budget especially if you’re a move up or a first-time home buyer. Why? You can buy the house, let the market do its thing, wait on it for 5 to 7 years, and come out after 5 to 7 years with a ton of equity in the property and do extremely well for yourself financially.
Bottom line is your cash, credit, and income are there, and you’re telling yourself that you’re not going to buy a house because what you want is not there you really need to exchange your goals for goals that are much more in sync with what reality is. This by far is the number one reason why you might not be ready to purchase a house because what you want in relationship to what the market supports are too far on the opposite ends of the spectrum. Often this is the primary reason why your mortgage financing and real estate purchase will not come to fruition. You must get real and surrender to what the market supports with the later goal of getting the dream house when the opportunity arises.
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