Blog #1
Buying a home can be a nerve wracking experience for a first timer. Trust me, I’m in the same boat. I am in the real estate industry and I have questions every day. How do you start the process? How do you find a good agent? What kind of loan can I qualify for? Do I have to put 20% down like my parents? Is it normal to want to cry when they ask me what my debt to income ratio is? Well, we’re here to answer all of your questions, one podcast at a time. Below we’ll cover a variety of topics, credit score, assets, debt/income, rent/buy, etc. Let’s get started.
We’re going to dive head first into the financial side of real estate with our own Shane Sharp with Team Wally Fairway Home Mortgage. A little background for those not familiar with Shane, he’s been in the mortgage business for about five years with Wally. Wally Elibiary has been in business for nineteen years and has racked up quite a few accomplishments. Top 10 lenders in Texas in 2016, Top 100 lender in the US in 2016, does underwriting in house, can get you closed in 15 days, just to name a few. You would be hard pressed to find someone better to give you lending advice outside of this team. They know their stuff.
As described in the podcast there are three pillars of lending; credit, income, and assets, or what I would like to call, “adult things that they don’t teach you in school.” To make it easy on everyone reading I like to break it down.
Credit, pay your bills, and try to keep your score between 600-800. Lenders will get into a little more depth of course, tell you about different loans and packages, FHA, conventional, VA, etc. Shane recommends a minimum score of 600 (FHA loan) and 620 (conventional loan). Of course if you are just under that 600 minimum there are ways they can rerun your credit, see if they can push you 10-20 points. For us millennials, we’re all about the DIY. If you have serious credit problems, DO NOT TRY AND FIX IT ON YOUR OWN. Get with a professional, you don’t want to damage your credit anymore than it already has been. A lender will pull three sources to determine your credit score, Equifax, TransUnion, and Experian. Do some research, find a company that works for you, or you know, call us. We’ll point you in the right direction.
Assets. All of the ways you can pay for that dreaded down payment. Three basic ways, a gift, anything in your checking and savings accounts, or taking a loan out from your 401K and IRA. You cannot pay directly with cash or “mattress money” this will be a red flag and you will probably be getting a knock on your door from local authorities. Just have the cash in your account for at least 60 days and you’re good to go! A gift is something you receive from a family member, a rich aunt, or maybe an estranged parent trying to buy your love, whatever works. One catch, you cannot pay back a gift. That’s why it’s called a gift in the first place. What lenders have been seeing more and more of is taking out loans against your retirement funds (401K and IRA). It’s a essentially zero interest since you are paying the interest back to yourself, there are typically zero early withdrawal penalties and capital gains, you can pull up to 50% and it’s ridiculously easy to do. A side note to make everyone feel better who’s reading this, lenders are seeing three out of four people putting less than 20% down! In fact, the standard is starting to become anywhere from 3%-5%. Which makes me feel a little better about that night out where I “accidentally” spent $140.00 at the Italian restaurant down the street.
Debt/Income Ratio: This is probably what most people in their 20’s struggle with the most. I can tell you first hand it’s definitely my demon. When I make money I want to spend it. We’re the generation of instant gratification. We’re travelling more than any generation before us, short term saving, etc. And that’s okay, BUT here’s a pretty easy equation on figuring out what you can afford to spend per month.
(Gross Income before taxes) = the MAX of all your monthly
2 debt & total mortgage payment
If you’ve made it this far I’m impressed, we’re almost done I swear. You’ve gotten the all clear with the credit check, and haven’t spent all your money in your checking account the minute you receive a paycheck (like I tend to do). Just one final step left, you have to hold a job for an extended period of time. The other great fear for millennials: commitment. Yes, banks do like to know you’re capable of obtaining steady cash flow. Ideally they would like to see you in the same industry for two years. Especially if you have a commission based job, for example, a buyer’s agent. If you are in a specialized field, let’s say nursing, they will actually count your schooling as apart of that two years.
Of course purchasing a home isn’t for everyone, if you’re not certain of where you’ll be in a few years don’t buy. You think you want to move out of the area, rent. It’s not the end of the world. On the other hand, if you are up in the air because you just don’t understand the process, let us help. A few bonuses for buying a home is the tax write off’s, you are receiving a check from the government every year, just for being a homeowner. You’re paying principle toward an investment. There’s a quote, “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” -- Franklin D. Roosevelt, U.S. president. Things haven’t changed in all these years. It’s still one of the best investments you can make. Finally, appreciation. Historically, the value of a home will appreciate 3%-5% every year (and that’s on the low end). Recently we’ve seen home values appreciate 12%-14%. Granted the market won't always be this extreme, but it still gives you a pretty good idea of the money people are making.
We’ll be continuing the podcasts every week on different topics to answer any questions for those who aren’t familiar with the home buying process. It seems like a daunting process, I can relate. We’re here to answer any questions you may have and welcome any suggestions for topics to cover. Your real estate professionals, The Buehler Group.
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