Why chasing the utopian mortgage isn’t a practical long-term solution | Company
Most families would agree that they would rather buy a house than rent a house. Buying a home is not for everyone and requires a certain degree of financial ability and capability. Most people start looking for mortgages online. The internet is a wonderful tool to get an idea of what you might be eligible for. While this may be the case, you also need to be realistic about the mortgage program you are looking for in relation to the market you are in.
You are a first-time home buyer. You have a $4,000 a month job, no savings in the bank, good credit with little or no debt. Based on online research, you have determined that you can find the eligible USDA program to purchase land and get construction financed. A traditional mortgage you don’t qualify for, because traditional mortgages are designed for homes that have already been built, i.e. ordinary real estate. So you decide to opt for this construction financing product in a market where the average price of a house is $500,000. Which would mean lot prices can usually be anywhere from $300,000 to $400,000. Using this as an example, it’s not realistic to think that such a program would be suitable for what you’re trying to do for several reasons. First, you don’t have a down payment or money for closing costs. Number 2, there is no safety net either. What happens if you lose your job? These are things to consider when buying a home.
Another example is that you are a first-time home buyer and don’t have a down payment or money in the bank. Your income is high, say $10,000 per month, your credit score is just under 700, and you are looking for a down payment assistance program to buy a home. Although you may qualify, down payment assistance programs all have income limits in the areas where you plan to buy a home. This means that you must be in line with the annual income of the area in which you are looking. Despite this, to be successful in buying a home, you would need seller’s credit for closing costs. In addition to all these things, you would need the ability to contract on a house.
One or two layers of challenges on a mortgage loan are doable, but three or more challenges when it comes to a financial situation on an eclectic mortgage loan is not the answer. It would be best to ask mom and dad or a family member to give a gift or borrow against your 401K for a down payment. Obtain a traditional mortgage that will allow you to increase your debt ratio despite a lower interest rate and a lower monthly payment. This would increase your borrowing power for a property that is already built and ready to go. It would be much more pragmatic than trying to chase after a utopian mortgage that could take you months or even years to get. Whereas if you had followed the advice of a reputable mortgage lender, you could have bought a home during this time, earned the equity the market would otherwise support you, and obtained tax relief. All the while, you could have come out on top financially in a side-by-side comparison over the same period of time. In other words, follow the advice of your local lender and real estate agent. Even if the boards aren’t what you want to hear, they know what they’re talking about, and they know what types of loans and escrows will fly and which aren’t compatible with market conditions. Something to consider when deciding which homeownership is best for you and your family.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes, vacation homes and investment properties. Learn more about www.sonomacountymortgages.com.