Paper Escape: Buy A Home
Touching on a Paper Chase: Buy A House by Kwaisi France of Killing the Breeze, we at Federal Home Loan Centers wanted a chance to pipe in and provide our two cents on buying a home. We were happily accepted to submit our thoughts.
First, the Paper Chase article in question states that a mortgage requires a three percent down payment, a credit score of 620 and purchasing private mortgage insurance (PMI). In this instance, we’d like to make the public aware of federal home loans, which are a more comfortable option for private lenders, and prove to be more flexible for consumers.
VA Home Loans
They do not require PMI coverage, and other federal loans through the USDA and FHA will only ask for PMI coverage if the lender requires it. A credit score as low as 500 can be accepted for federal loans under the VA, USDA and FHA. When doing a loan through the VA and USDA, a down payment is not required and closing costs can be paid by others through gifting or negotiation. There is also no penalty for paying off any federal home loan early, if you have the availability to do so down the line.
Sure, while new housing has slowed down and in some areas, the price of housing is going up, there are options that a potential homebuyer should take into account. There are inexpensive properties that have been foreclosed on or short-saled by the previous owner, there are fixer-uppers that can be bought with the 203k home rehab loan, and there is also the growing fascination with tiny homes that many Americans are now turning to for lower costs of living. A savvy homeowner will see they have a great investment opportunity to improve a property’s value and grow equity.
First Time Home Buyer
Despite ever-changing views on the housing market, you always have options. If there are people around you foreclosing or avoiding homeownership, that doesn’t mean you have to. Just because a movie has bad reviews, doesn’t mean it should deter you from going to see this film for yourself. Having the means right now for a home means a good DTI (debt to income ratio), stable job, wise spending/saving habits, and a great federal home loan behind you. This should make you, the consumer feel a little more at ease.
Millennials Are Avoiding Homeownership
With all due respect, it is simply not true. To be fair – millennials are indeed earning less than their parents were during their generation of entering the job market, but millennials have a lot more resources available to them thanks to advances in technology. Two facts are making homeownership for millennials very enticing, these days.
Rent Prices Are Going Up
And shrewd millennials are able to do the math. Over 50 percent of millennials surveyed by Zillow (more proof of this data here and here) said they will be looking into buying a home within the next five years. This generation of upcoming homebuyers are marrying and having kids, or if they are particularly smart, realize they can own a spacious home with multiple people and have all the occupants of the home pay toward the monthly mortgage fees.
An example being that a three bedroom house that needed a $200,000 loan at 3.92 percent interest spanned out to 10 years with four people living in it (one couple and two singles) will split a hypothetical monthly loan payment of $2,017 four ways, so each person pays a little more than $500 a month for “rent” and can all save up for a future modest home of their own. If there is equity, they could all even negotiate to split it four ways to use towards a future home.
A friend of mine from Massachusetts, who wants anonymity, invested in a condo with her then fiancée at the age of 25. Why? She realized that rather than paying for a leased apartment at over $1,000 a month, she could pay less and own property that can gain value down the line. And surprise – the condo has previously been foreclosed on, so she got a great deal.
Another reason, which may seem silly but is valid, is that many millennials tend to be pet owners in an apartment market that is severely anti-pet. It took me, the writer of this article, a month and a half, as well as likely over 50 calls and inquiries, before I could find an apartment that would take our dog, not charge an outrageous pet deposit and would waive a monthly “pet rent.” Those who love animals and want more than two pets, or want dogs weighing over 25 pounds, or want dogs under a list of restricted breeds, are looking toward homeownership.
Yes, we won’t sugar coat it – not every person who applies for a home loan should apply. If you have a credit score of 300, work 10 hours a week and are an irresponsible spender, then homeownership is not something you should pursue yet. Emphasis on the term “yet,” because gaining a home through a federal home loan program in the near future paired with better money habits is very possible.
We thank Killing the Breeze for letting us contribute a piece. Amanda Rosenblatt, the writer of the article, is an in-house writer for Federal Home Loan Centers. Visit the site for more home loan info HERE and follow on Twitter HERE.