Dream Home

By DiAnne Crown

May 4, 2018 6 min read

Millennials hoping to reduce housing costs and build equity are entering homeownership with high expectations, according to a July 2017 CNBC article by Diana Olick. They want lenders focused on customer service over profit, transparency in transactions and expertise. For that, even today's tech-savvy millennials will benefit from a personal relationship, says Carrollton Bank Senior Vice President Mark Ginster: "Go in and meet face to face with a home loan officer to talk about the process and what's available to you."

The good news, says Ginster, is homeownership may be more attainable than you think. Various government grants for first-time homebuyers combined with well-regulated conventional financing options can make the dream of homeownership a reality even when it seems impossible. He recommends a common-sense strategy to make that dream come true.

*Make a Plan Before You Go Shopping

There will always be houses for sale. Don't go to real estate websites first, Ginster says. Unless you can pay cash, you'll need a mortgage, typically from a lender that will be either a bank or a mortgage broker. "Find someone you're comfortable with to compare the benefits and feasibility of home ownership versus renting, and discuss the various loan products designed to assist first time home buyers," he says."

From there, you'll need to have a conversation about your overall financial picture. This will either prequalify you for an affordable purchase or let you know the areas that need "repairs."

"You need some sort of a down payment, although it doesn't necessarily need to be the 20 percent everyone talks about, and you will have to pay closing costs," he says. "You need a stable income and two-year work history. A credit score at or above 700 will help reduce your loan rate and fees. And your debt-to-income ratio should be less than or equal to 43 percent of gross monthly income including installment payments, credit cards, your new mortgage estimate, and student loans."

If necessary, start saving some money; pay down debt; establish good credit; and go back in a few months. In one October 2017 Trulia real estate blog article, writer Laura Agadoni suggests seven steps to take several months ahead of your house hunt:

--Check your credit score; correct any mistakes on your record; and make sure you pay all bills on time.

--Don't open new credit cards.

--Suggest financial gifts for the holidays. Put cash you receive into your emergency fund.

--Interview potential real estate agents.

--Keep tabs on interest rates.

--Find a mortgage lender. Agadoni writes: "Before you even start looking for a home (and yes, we even mean browsing online listings), look for a mortgage lender to find out if you can afford to buy a home. If you can't right now, there's no use torturing yourself by finding your dream home that's just out of reach." Compare three lenders, including your bank, a recommendation from your real estate agent and one other, she says. "Once you know how much home you can afford, perform your home search based on your preapproval amount or less."

--Get preapproved.

*Affordable and Reasonable Aren't Always the Same

Homeownership often comes with surprises in the form of unexpected costs and repairs. "Know what you can afford," continues Ginster. "What you qualify for and what you can afford are usually different." And other changes, such as loss of income and medical bills, can affect your financial picture overnight. "You don't want to be house poor," he says.

*Work With a Realtor Whenever Possible

A Realtor can provide a current market analysis, help ensure that you don't overpay, describe neighborhoods and potential resale markets and help you decide, say, whether the fact that a house has been on the market for nearly a year is sufficient cause to move on in your search.

*Icing on the Cake: Becoming Debt-Free

First-time homebuyers who base their purchase on payoff rather than payment, buy less than they can afford, live frugally and make extra payments against their loan principal can pay less interest over the life of the loan, pay the principal down faster and enjoy 100 percent equity before the end of the loan term.

One way to accomplish this, says Ginster, is making 13 payments per year instead of 12. Ask the lender to split your payment into two parts each month. In addition, pay any bonuses and tax refunds against the principal. Online tools such as the CalcXML Extra Payment Calculator can show the results of extra payments on your loan amortization schedule.

That said, Ginster advises not cutting the budget too close, even for highly motivated individuals who see the value of a more short-term interest rate. Take a longer term and pay extra, rather than taking a term that's so short you risk defaulting.

"The path to home ownership doesn't start by looking at houses. It starts by looking at where you are and what you are able to do," says Ginster. "I don't want anyone to be frustrated on the first day." By talking with someone, making a plan and taking action, it's possible you'll own a home sooner than you think.

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