Sometimes, people do things that undermine their chances of buying a house and create their own barriers to homeownership. It can be anything from having way too much credit card debt or forgetting to pay their monthly bills.
Plus, living paycheck to paycheck seems to be the norm in many households. That’s according to Tiffany Taradash, then with CNN Mortgage in Scottsdale, Ariz.
“That’s an age-old concern that never seems to have the magic answer,” she adds. “Avoiding the need for instant gratification is problem one of the main things that can help fix this problem. If you want something, work hard for it, save your money and when you can afford it, then buy it.”
Some people just give up on buying a house because of their financial situation. For others, they accept the misconception that getting a mortgage is a horrible experience and difficult.
“But this is actually not true at all,” she says.
In fact, it’s actually easier, Taradash explains. The exception was in the early 2000’s. At that time, many products were available that in the end were not good options for borrowers. Those eventually led to the crisis that so many people and companies experienced.
“With good credit, a stable job and some money in the bank, the experience should be pleasurable,” she adds.
The biggest financial barriers to homeownership
Bad Credit
This can be for a number of reasons, mostly too high credit card bills or late payments.
“Credit cards do not have to be a problem when buying a home. They actually can help if balances are kept below 50% of credit limit and payments are made on time,” she says. “If maxed out cards and late payments come into play then credit cards can be a big problem, mainly because it has a negative impact on credit score.”
No Credit
Many potential home buyers just don’t have enough credit lines open. Some lenders can create a credit history by using things like rent payment history. Even so, establishing credit is a step any potential home buyer should take.
No down payment
Many people live paycheck to paycheck. So, saving 20% on a $300,000 purchase takes many years and most people don’t like to wait, Taradash says.
However, there are many ways to get help with your down payment. These include assistance programs throughout the country and gifts from family members. You can also sell things on eBay, at consignment stores or through local online garage sales.
Poor job history
Lack of a job, part-time job and not enough time on a job can be several reasons. Lenders generally verify a two-year employment history. If you are employed and are looking to buy a home, do not change jobs, she says.
Other barriers to homeownership that can hurt you
Buying a car every two or three years
Buying a car usually should not hinder getting financing for a home, she says. The exception is when the payment is too high based on the buyer’s income. And some people just buy too expensive of vehicles when a less costly one could do just as well.
Getting a new car can also mess with your credit score. As a result, it can push people into different categories when it comes time to see if you can buy a home.
Too many monthly bills
Loan lenders do not take into effect household type expenses, Taradash says. However, those expenses do hinder people from saving enough money. Reevaluating your spending can possibly help you find more funds available for a new house. For example, look at high smartphone charges, cable and digital television, subscription radio, video games and other discretionary spending.
Student loans
Student loans can be an issue, she adds.
“In the past lenders were able to [use] deferred payments and not count them against a borrower against their debt to income ratio. Today rules have changed, and there are formulas in place to determine how much lenders must use against the borrower.”
Taradash says there are great tools to assist individuals in the pursuit of homeownership. Start the process by talking with a personal finance expert, your local bank, accountant and organizations that focus on homeownership.
“Also, pay attention to your monthly bills, and do not miss any payments ever,” she says. “Make sure you keep credit card balances below 50% of the max credit limit, preferably around 15-30% of the limit.”
If you save your money and build more down payment, you will be better off, she explains. That’s because your interest rate can be lower and the lending process gets easier.
