It breaks my heart when a low income buyer walks into my office, because they so badly want to own a piece of the “American Dream,” as so many of us in our profession have promoted to the buying public over the years.  But let’s be realistic.  Not everyone is capable of owning his or her own home. 

Months ago I was watching Oprah and she had Suzie Orman on the show soon after the lending world went into a tizzy and the number of foreclosures nationally increased dramatically. 

The thing I like about Suzie is her ability to give real life common sense advice.
I remember one woman stand up and ask Suzie what she should do, because she no longer could afford to own her home.  Do you know how Suzie responded? 

          She told this woman not to be ashamed of having to sell her home.  That just because she didn’t own her own home doesn’t mean she no longer has a home.  “Home is in here (Suzie pointed to her heart).  Home is your friends and family, pets and loved ones.  Just because you no longer live in your physical home that you own, doesn’t me you should think less of yourself.  Home is what you make it.” 

So for those first time homebuyers and the agents who represent them, here’s what I have been advising my clients:

1)    Get into the habit of saving a certain percentage of your take home every month.

• Why?  Because most loans out there require a minimum of 5% cash down payment of the purchase price of the home.  Not to mention closing costs, which can be as much as $6000 extra.

• By saving your money you’re showing the lending world that you are a financially responsible person.  Because you’re thinking ahead.  You’re more likely to have an emergency fund to pay your mortgage, g-d for bid you lose your job tomorrow.
  

• One way to do this is to figure out what your monthly mortgage payment might be.  Now subtract your rent from the estimated mortgage payment.  And put the remaining amount into your savings account each month.  This accomplishes two things:  1)You get to see if your comfortable with your monthly payment.  Plus you get into the habit of saving, and 2) You'll be saving towards the down payment once your ready to buy. 

2)    Pay off your bills on time, every time.  This also leads towards building good credit.

• Again this shows a lender that you are a financially responsible person. If you have a history (credit reports reveal this) of paying off your bills and paying on time, you are more likely to pay your mortgage on time, every time and not miss a payment.
  

3)    You need to be making enough money to qualify for a loan.

• The lender will only allow you to spend approximately 1/3 of what your gross monthly income is to be used towards a mortgage payment.

• Lenders look at the PITI (principle, interest, taxes and insurance) to calculate what your monthly mortgage payment will be.

Let’s say for example you want to purchase a $225,000 home:

• You have cash to put 5% down and the lowest interest rate you can get for your loan is 6%. Your monthly payment will end up being approximately $1600 per month, including taxes and insurance.   If you only bring in a gross of $2500 per month, you can’t afford this home.  

• Remember, you still have to eat, pay your bills, etc.  Oh and yes, the lender looks at this too.  It’s called your debt to income ratio.  Even if you make enough money per month to pay for that $1600 monthly mortgage payment (that is you make over $4800 per month) if you have too many bills to pay, like your car payment, bill for that big screen TV you had to have, etc., then the lender will not be able to give you that loan.

Does this mean you will never be able to own your own home?  For some of you that dream may not be attainable unless your income increases.  But for those of you out there who can afford a home, but don’t have enough for a down payment plus what you’ll need for your closing costs, sit down with a lender and figure out a good financial plan so that you can be in a position to buy in the future.  Maybe even the near future.

Copyright 2008 Jessica Bigger.  All Rights Reserved.  * Humboldt County Ca First Time Homebuyers: Not Financially Ready to Buy?  Here's Some Tips on Getting There*

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Contact Jessica Bigger, Realtor®, RE/MAX Humboldt Realty at 707-496-5770 to list your home for sale or to purchase your first or next home in Eureka, Cutten, Bayside, Arcata, McKinleyville, Westhaven, Trinidad and the rest of Humboldt County California.

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