4 Tips to Buying a Home this Season

Ready to put out the welcome mat? We have 4 tips to buying a home, that will set you on the smart path to homeownership.

With the holidays over, some people are gearing up to make their next purchase – a home. The homebuying season is in full swing. Below are four tips you follow to make the best homeownership choice in 2017: strengthen your credit, shop wisely for a mortgage, choose the right house and negotiate the best price.

  1. Strengthen your credit score before looking for a mortgage. The majority of people don’t know their credit score until they begin to look for a home or a mortgage. Since finding the right house takes an average of one to three months, it could pay off to use the time to strengthen your credit score, especially if it means getting a lower mortgage rate. The benefit varies from lender to lender, but a strong credit score can cut as much as half a percent from your rate.A housing counselor from The HomeOwnership Center can provide guidance on what to do to boost your credit score while shopping for a home.
  1. Shop around for the best mortgage. Not every lender offers the same mortgage rate, so shopping around is essential. Yet, according to the Consumer Financial Protection Bureau, nearly half of people who apply for a mortgage don’t shop around. The price of failing to do so can be quite significant after several years.As important as it is to obtain the best mortgage rate, it’s also crucial to be aware of fees charged by mortgage lenders. These fees go by various names—another reason to work closely with a housing counselor from The HomeOwnership Center throughout the process.
  1. Choose your house carefully. With a mortgage-approval letter in hand, it’s time to find your home. A market with low housing supply requires a buyer to look for a “diamond in the rough”—a not-so-perfect house that could be rehabbed to make it suitable. That doesn’t you should settle for a house that doesn’t meet your basic needs. Keep your list of must-haves front and center, but make sure they are not really “nice-to-haves.” Many housing counseling organizations like The HomeOwnership Center can provide a starter list of real estate agents from whom to choose.
  1. Negotiate, negotiate, negotiate. If real estate is location, location, location, then homebuying is negotiate, negotiate, negotiate. Unless you’re buying in the most heated and competitive markets, there is always room for negotiation. Here’s where selecting the right real estate agent pays off. Whether it’s the price of the house—probably the most important item to negotiate—the portion of closing costs to be paid or whether a warranty for major appliances is included, presenting the seller with a list of requests is important. Remember, the seller wants to sell and you want to buy. Home purchases that are mutually beneficial are made in the middle.

Following these tips and working with the team at The HomeOwnership Center will help you successfully find your “home sweet home.”

* Article provided by NeighborWorks America.

How Do the Unbanked Buy Homes?

Recently, the Dayton Business Journal had an indicating that 7.2% of Ohioans don’t have a bank account. The article goes on to say that those unbanked Ohioans pay over $65 million dollars in service fees as a result of not having bank accounts. And while that is a lot of money being paid by the folks that can least afford it, I was really focused on the prospect that people without savings and checking accounts couldn’t buy homes. Seriously, how can you hope to own your own home if you don’t have savings and checking accounts?

Loan officers ask for a lot of paperwork when you apply for a home loan, including copies of your bank statements. We ask for the same documents when you apply for down payment assistance. So, why do lenders want your bank statements? They are looking for the three C’s of underwriting a loan.

  1. Credit Reputation: Your credit score, delinquent payments, bill collections, types of credit accounts, credit balances, and credit limits all go into determining your credit reputation. The lender will want to know if you have maintained a balanced bank account with no overdrafts.
  2. Capacity: Do you have the ability to pay back the loan? Banks will be looking at debt ratios and income. They will also factor in things like cash reserves, type of loan, and employment history.
  3. Collateral: How much equity or down payment can you apply towards buying a home? What kind of property are you buying? Is the property a condo, multi family, or manufactured home? Will the property be your primary, residence, second home, or an investment property?

You see, lenders have a legal responsibility to ensure that you can be reasonably expected to repay the loan. So, they ask for your bank statements. If you can’t provide statements from savings or checking accounts, you will have a tough time providing the proof needed to answer questions about the three C’s.

At this point, we should consider another question entirely. Why is an individual unbanked? Do they not trust banks? Have they had trouble managing their money in the past and can’t open a bank account as a result? The reason I ask these questions will become evident in a moment.

If you are unbanked and want to buy a home, you could bypass the conventional lending system entirely and look at alternative methods of buying a home, such as lease to purchase agreements, private financing, and land contracts. Each of these methods has it’s own set of pitfalls that you need to understand. As a matter of fact, we have an entire web page devoted to warning you about the downside of lease to purchase arrangements. We certainly would not recommend any of these solutions to someone who is struggling to manage their finances. The risk of digging yourself into a deep financial hole is just too great.

If, you are responsible with your money and just choose to not have a bank account, a lease to purchase or land contract may be a viable option for you. However, I would still recommend that you meet with a professional housing advisor (Like the advisors at the HomeOwnership Center) so that you are fully aware of your options and risks before pursuing any of these alternative means to buying a home.

If you are unbanked because of past money management issues, the best solution is for you to tackle your financial problems head on. You need to establish good financial habits, open a savings and checking account, create a good credit history, and put money into savings.

There are other reasons for establishing bank accounts:

  • You will earn interest on the money you save.
  • Your money is safeguarded and insured by the Federal Government.
  • You will build a relationship with a bank or credit union.
  • Lenders will be able to verify your ability to save money.
  • You will gain access to other bank and credit unions services such as credit cards, car loans, and financial advice.

This is not an easy process. Building a solid financial foundation takes discipline, time, and hard work. However, you don’t have to do it alone.

The HomeOwnership Center’s Mortgage Ready program was created for the sole purpose of assisting those with bad credit, no credit, or past financial problems. In the program, you are given your own financial coach to educate, guide, and motivate you along the way. The entire goal of the program is to show you how to improve your finances so that you can buy a home of your own.

The bottom line? If you are unbanked due to past financial mistakes or if you have a bad credit history, there are steps that you can take that can lead you to homeownership.

Student Loan Debt and Buying a Home

If you have a lot of student debt and you are trying to buy a home of your own, you may quickly realize that your student debt is an obstacle. Why do a lot of student loan debt and buying a home not play well together?

Student debt and back end Debt -to-Income Ratio (DTI): When applying for a mortgage loan, lenders will calculate your DTI. Basically they are comparing your income to your monthly debt payments. (Learn more about back end DTI here.) They want to know if you can afford the monthly payments on a home when considered with all of your other monthly debt payments. The more debt you have, the higher your DTI.

If your back end DTI exceeds the limit set by your lender (typically 43% or less) your mortgage application may be turned down. Even if you are approved for a mortgage, your DTI may still affect your ability to obtain down payment assistance. (HomeOwnership down payment assistance programs require a maximum back end DTI of 42%.)

How is your student loan debt calculated into your DTI? Lenders may use one of two different methods to determine your student loan payment on your DTI.

  • The 1% method: Some lenders simply determine 1% of your total student loan debt and use the resulting figure as your student loan’s contribution to your back end DTI. This method may work against you, especially if you are on an income based repayment program or have extended your student loan term beyond ten years.
  • The actual payment method: Using this method, the lender uses your actual monthly student loan payment as input to your back end DTI.

Which method will be used? That depends on a lot of factors. Are your loans in deferment? Are you on an income based repayment plan? What kind of mortgage will you have (FHA, VA, conventional, USDA, etc. Determining the method used can be complicated, so don’t be shy about asking lenders how they will consider your student loan payments when calculating your back end DTI.

None of this is to say that you can’t buy a home when you have student loan debt. People with student loans buy homes every day. However, having a lot of student debt can be a big road bump for may people on their road to homeownership.



Estimating the Cost of Utilities for Your New Home

Google “new home budget” and you are likely to see a listing of web sites that show you how much it will cost you to buy a new home. That’s really great information that you should understand before buying a home. However, the actual cost of the home is only part of what it will cost you to live in the home. One of the most overlooked expenses of living in a home is the amount of money you will have to spend on utilities each month. So, how can you estimate the cost of utilities for your new home?

Ask for utility bills

Have your real estate agent ask for the home’s utility bills for the last twelve months from the current owner. Utility bills can vary greatly from one owner to another based upon variables like the number of people living in the house and the energy efficient mindset of the owner.  Still, this request gives you the actual costs of heating cooling, and powering the home in the recent past.

Call the utility companies

Many companies will give you the average utility cost for the last twelve months. All that you need to do is provide them with the address.

Get an energy audit

If you would like to go one step further, you can conduct an energy audit of your new home. Contact your local energy provider and ask about their energy audit programs. Professional auditors will use tools such as infrared cameras and blower doors to look for energy leaks. They will then make recommendations that will improve your home’s energy efficiency.

With a minimal amount of effort, you can get a good estimate of what your energy costs will be in a new home as well as learn steps that you can take to improve your home’s energy efficiency.

House Hunting Checklist

Why do you need a house hunting checklist?

The job of finding a new home can be confusing and even daunting. You have so many factors to consider and to remember. Does the house have the bedrooms we needed? Which house needed new kitchen appliances? Did the blue house have the bonus room over the garage or was it the house with the pool?

The Home Ownership Center of Greater Dayton created a checklist to help you keep track of the homes you visited and to assist you in evaluating each home. Hopefully, the list will help to organize your search and ease some of your house hunting stress. All you need to do is download the checklist and make as many copies as you need. Use one checklist for each home that you are evaluating.

Go ahead. Click on the thumbnail below and download the checklist. It’s free and it will make your house hunting experience a little less hectic.

House Hunting Checklist

House Hunting Checklist