What Are the Risks?
Overall, homeownership is a good investment for most people, but there are risks. If you understand the benefits and risks of homeownership, you can make the best decision about when to buy a home.
So what are the risks of homeownership?
Monthly housing expenses can increase. Your monthly mortgage payment may be larger than your rent. These higher monthly payments may be offset by a tax benefit at the end of the year. Talk to a tax professional to understand your particular situation.
You become your own landlord. If an appliance breaks, you will have to pay for its repair or replacement. You are also responsible for the maintenance and upkeep of your home and your property.
You may need to sell your house due to life circumstances. Depending on the local real estate market, you might not be able to sell your home quickly. You may also face additional expenses, such as hiring a real estate professional.
Property values can depreciate. You can lose value in your home for a number of reasons, such as a recession, the condition of your home not being kept up, or a drop in a neighborhood's home values. If your home loses value and you have to sell it for less than you owe, you will be required to repay the full mortgage.
Downsizing quickly may be difficult. In times of financial difficulty it is easier to find a cheaper rental than sell a house. If you need to sell your home, it may take some time and you'll still be responsible for the mortgage until it is sold.
Be honest with yourself. If you are having financial difficulty, don't wait until it becomes a crisis. Look at your financial picture realistically and talk to your mortgage lender immediately if you think you may have trouble paying your mortgage on time.
Myths About Homeownership
How lenders assess mortgage applications has changed a lot in the last 20 years. What closed the door to homeownership then may not be a factor today.
The following are some common homeownership myths:
Myth: You need great credit to become a homeowner. Fact: You may still be able to buy a home and you have less-than-perfect credit. And remember, you can improve your credit over time. But if you are buying a home and you have less-than-perfect credit, talk to a housing counselor who can help you avoid a mortgage you can't afford. It is important to comparison shop. Be wary of a lender who tells you, "Your less-than-perfect credit means that no one but me will work with you to find you a loan."
Myth: You need to put 20% down to buy a home. Fact: There are many types of mortgage products and programs that allow low and no down payments . But remember that your interest rate may be higher for a low or no down payment loan. Also, be sure to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.
Myth: You can't buy a home in the U.S. if you're not a citizen. Fact: If you're a permanent or non-permanent resident alien, you can purchase a home in the U.S.
Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage. Fact: Having a bank account is always a good idea and helps you establish credit . However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.
Myth: Lenders share your personal financial information with other companies. Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared. If you are unsure how your information will be used, don't be afraid to ask – it's your right to know.
Myth: If you're late on your monthly mortgage payments, you'll lose your house. Fact: If you have a financial hardship, like the death of your spouse or a medical emergency, and fall behind, it's possible to keep your home and get back on track if you contact your lender early. Even if it is not possible to keep your home, you can sell your home and possibly buy a less expensive one rather than face foreclosure.
Myth: You can't get a mortgage if you've changed jobs several times in the last few years. Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income.
Credit and Homeownership
If you're thinking about buying a home, you should also be thinking about your credit. The first step in the home buying process understands your credit.
When you apply for a mortgage, lenders will review your credit report. Your credit report is a history of how you've managed your finances: it's a record of money you've borrowed, your history of paying it back, and how much open credit is available to you.
Your credit report follows you wherever you go and will have a big influence on whether or not you can get a mortgage, the terms of that loan, and the interest rate. If you have good credit, you may have a much wider range of mortgage options with lower rates.
So how do you better understand credit?
Be aware of how important your credit history is to the process. Establish good credit and protect your credit .
Look at your credit report and credit scores .
Make sure you correct any mistakes on your credit report right away.
Find a reputable credit counselor to assist you with any credit issues.