Episode 3: Can I Actually Afford To Buy A Home?

Are you wondering if you can afford to buy a home? Are you curious if you even qualify for a loan? IN THIS EPISODE Lori sits down with lender Justin Brown of NuHome Team at New American Funding to share his tips and wisdom to purchase a home sweet home no matter your situation.

As we continue our home buying journey, Lori sat down with lender Justin Brown to talk about how you can afford to buy a home and all the tricks and tips he’s discovered being in the industry. So let’s break down what they talked about.

Listen to their conversation and hear some more of the tricks, trips, wisdom, and stories that we didn’t summarize. Subscribe to the podcast so you don’t miss an episode!

Are you wondering if you can afford to buy a home? Are you curious if you even qualify for a loan?

The answer may surprise you.

Are you a young family that’s just getting started on your home buying journey and don’t know where to begin?

You should probably keep reading. This discussion focuses on the prime age of home searching, 24-25 year olds.

How Can I Buy A Home?

Well, first things first. We sat down with a lender--Justin Brown of NuHome Team at New American Funding to get some feedback on what that looks like.

1. Start the conversation.

2. Make a budget and goals.

3. Adjust to the budget and goals.

4. Find that home sweet home.

So let’s talk within some of the circumstances you may be in and the questions you may have.

Factually, you can buy your first home with as little as 3-3.5% down. And that basically means that you need 3-3.5% of the purchase price of the home when you for that minimum down payment.

But how do you even get that 3-3.5%?

ASK YOURSELF

1. Did you get a tax refund?

2. A loan?

3. Some family assistance?

4. Is there a program available for down payment assistance?

   In California there is a program called CalHFA, the California Housing Finance Agency. Justin dived into that program a little more for us. Your income has to be under the amount listed, which can range from county to county. (To see the latest qualifications for the CalHFA please visit calhfa.ca.gov.)

   It used to be qualifications through calculating the total household income, but now it’s just the income of whomever is on the loan. For example, if you applied to the loan in just your name, and you have a spouse who didn’t put their name on the loan, they will not include your spouses income within the income limit qualifications. 

   As of year 2020, it’s estimated that the income limit is $120,000-$129,000 in Los Angeles and San Bernardino County and $160,000-$170,000 in Orange County.
   The income limit used to be in the $60,000-$70,000 a year range, but recently changed and this certainly makes applying for these loans and qualifying more attainable for many people.

So about that affordability?

So now we dive into the question of affordability. This is where it can get a little dicey.

So should that 24-25 year old buy if they have the 3-3.5% down? Maybe? Maybe not?

It is going to depend on each individual situation. 

“Just because someone qualifies for “x” doesn't mean it’s going to be a comfortable situation for them,” says Justin.

“At the end of the day the money that goes into your mortgage, a chunk of it goes into your pocket. Plus it’s one of the only appreciating assets that you could ever buy.

— Justin Brown

So walk through the next step. 

ASK YOURSELF

1. Can I afford this?

2. Will my lifestyle be comfortable?

3. What’s your budget like?

4. What do you pay for rent right now?

5. What are you spending your discretionary income on?

6. Do you really need that second coffee?

7. How much are you able to save?

8. What can you cut back on?

And keep in mind, “At the end of the day the money that goes into your mortgage, a chunk of it goes into your pocket. Plus it's one of the only appreciating assets that you could ever buy,” notions Justin.

The real estate market has a history of appreciating. Sure there are ups and downs along the way, but it’s like the stock market, it continues to go up. 

It forces you to save! Every payment you make on your mortgage you are accruing a nest egg. You’re building something into your future. 

So cut back on that coffee, the unnecessary services and extras, so you can put yourself in a better position in the future. 

So is it a good financial decision for you at this time? That’s the most important thing to figure out.

Now about that qualification

It’ll look something like this:*

1. Complete the application.

2. Having your most recent 2 years of filed tax returns and W-2’s.

3. Two recent paystubs.

4. Two months of bank statements, any 401k, IRA, or other banking/retirement/investment account statements.

5. Mortgage statements for any properties if applicable.

6. Two years of business tax returns if applicable

7. How much you will be putting down?

HISTORY OF INCOME

Typically need 2 years of history of income.

If you recently graduated with a degree or certificate and just started working you can use that income and get around that. If you’ve been working for awhile you will need to show at least 2 years of history. So even if you change jobs they’re just looking for no more than 6 months of an unemployment gap in the last 2 years.

So, broken down for example- If you just graduated from the police academy you are allowed to use that income for your application. You don’t have to wait to accrue those 2 years.

What are the rates like right now?

They’re low! At 3-4%. A payment on a house is going to be hundreds of dollars cheaper than it would have been a year and a half ago. So if you’re on the brink of considering applying for a loan right now you should really begin looking into those affordability numbers. The last time rates were this low was back around 2014! And people who hesitated to grab that affordable opportunity are wishing they jumped on it because the rates shot right back up!

If the rate is lower, how much more house can you potentially buy?

For example: 5% rates versus 3% rates could mean a $50,000-80,000 difference in price! Money you can save!

So talk to your lender, your real estate agent, and other wise consul on how you can make a win-win for everyone, the buyer and seller, when making that purchase.

Listen to the podcast for a deeper story on that deal and how to use points to your advantage. You know that phrase, “buying down your rate”, well that basically means paying more up front to lower the rate and payment per month over the lifetime of the loan. Learn more here.

Don’t over complicate figuring out the numbers on your own.

1. Sit down with a mortgage professional

2. Go through your budget together

3. Reach out to a professional realtor

4. Adjust based on your situation

5. Get to shopping for your home

Now, are you asking yourself these questions?

“SHOULD I REMODEL MY HOUSE OR SHOULD I BUY ANOTHER HOUSE?”

Well, sit down and compare your numbers.

What’s your payment going to be if you decided to do a cash-out refinance and use that money to remodel your home?

What would it look like to sell your home and use that money as a downpayment on the new one at today’s rates what would that payment look like?

Aside from the money factor, consider these things:

1. Is the size of the home different? Larger? Or smaller?

2. Are you wanting to do the work of remodeling? Or want a move in ready home?

3. Do you like your current location? Or are you wanting somewhere new?

4. Can remodeling fix the things you don’t like about your current home? 

“OH NO. DO THEY REALLY HAVE TO RUN MY CREDIT AND AFFECT MY SCORE?”

Don’t worry. If you don’t want a hard inquiry you can do what’s called a soft inquiry that will not affect your credit score. But they will need to run some sort of inquiry to get an idea of what your pre-approval for the loan looks like. And what if you say, “I have Credit Karma, you don’t need to run it.”

Well, here’s where we will stop you. According to Justin’s experience those Credit Karma scores have been off by a hundred plus points. The banks, auto companies, and credit card companies all use different scoring models and are typically just estimates, which means you may be in for a surprise when you truly run an inquiry on your score.

“WHAT IF I WANT TO BUY A CAR FIRST OR RIGHT NOW?”

Tread lightly, no pun intended. This will definitely affect your ability to qualify for the loan if you take out another loan at this time for the vehicle.

“WHAT ABOUT MY OUTSTANDING STUDENT LOANS AND MY QUALIFICATIONS?”

It’s actually a normal occurrence to have this question.

1. Are they in deferment?

   If so, they will still have to count .5-1% of the student loan, but on the bright side it doesn’t impact you too much.

2. Are you making payments?

   The amount you’re paying on them each month is factored into the calculations. You can figure out the details of those numbers during your consultation.

   Successfully qualifying with student loans is more common that you’d think! Justin has seen some people with up to six-figures in student loans that still qualify. And if you’re nervous about it still, have your lender help you look into some income based repayment plans and other methods that can adjust your payment plans.

“WHAT IF WE AREN’T MARRIED?”

There is still hope to get that loan.

1. Are you applying for a VA (Veteran Affairs) loan?

   If you are, you will most likely need to be married to qualify. VA financing doesn’t allow a co-signer for zero down unless they are your spouse.

2. Are you applying for a conventional loan/traditional loan or down payment assistance?

   Both you and your spouse do not need to be on the loan application to qualify. So if you’re worried that one of you has bad credit, try applying using just one of you. 

And once you find out what loans you’re applying for, like we’ve said before, you need to go back to the numbers. What’s your budget? How much are you looking to invest into your future, your memories, and your legacy? Know what your priorities are and see if they line up with what price range you set your heart on.

Final words

It’ll be a step in the right direction. It’s all just a part of the process. So, begin the conversation. Consultations are free. Put yourself in a position to be ready to achieve your dream home.

Talk to your lender. Talk numbers. Talk dreams. Line them up. Stop dreaming. Start making memories in your home sweet home.

Justin Brown is a second generation lender with over 20 years of experience in the business. Are you looking to buy a home and need help beginning the journey? Give Justin Brown a call at 714-949-5322 or check him out on loansbyJB.com. Schedule a meeting to go over your goals and dreams  together and see what’s possible.

Want to hear more about it? Listen to Episode 3 of Lori Alvarez’s Real Estate With Soul: Can I Actually Afford to Buy A Home?

Thanks for reading!

Real Estate is an ongoing story. Tune in to the next episode where we will talk with a Buyer’s Specialist Agent, Amy Cruz, about the about the buyer search.

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Be boldly blessed.

*sourced from loansbyjb.com/get-pre-qualified/

Disclaimer: Please verify all information with the licensed professional of your choice.