requires a change in your mind set. It’s a buyer’s market in all but a few locations and that’s good news. Still if you look only at the surface of today’s market, you may think not much has changed. Developers may not have taken down the signs that offer brand new 3 and 4 bedroom homes in the low 400’s. Or the ads offering paybacks and incentives on $500,000 tract homes may not make it any easier to imagine yourself being able to buy them. Just the other day, I received this comment from blogger Minimum Wage:
Where I work, we live within our means but none of us can buy our own homes. Where do you get these ideas?
He started me thinking about this idea. How does someone who has lived within their means but has found themselves priced out of yesterday’s market buy a home? The answer for yesterday, of course, was the infamous sub-prime loan. Use stated income techniques, look for an ARM, borrow your down from a credit card, and go for it. What was the worst that could happen? Oh yeah, foreclosure, loss of credit status, or even bankruptcy. But that was then, as they say.
Today the lending market, supposedly, is on guard. A high alert status that demands full disclosure of your financials, a two year work history, two years of tax statements, and a 30% down to lock in the low interest rate for a standard 30 years. Of course, you have to pay for all this diligence with points (as high as 2 in some cases). But for the person who has been living within their means these requirements should be seen as a confirmation. Their FICO will be higher than the minimum 680 because they use their credit cards wisely by paying them off each month and by keeping the older cards active. Though they may work at low paying jobs or are close to retirement, they have a consistent work history, and best of all, they may through their frugal ways have been putting away an emergency fund in an ING account or in laddered CD’s. This sort of financial behavior is exactly what the nervous lender in today’s market is looking for.
Still, this may not put you over the edge. There are two things to look at next: The market itself and your ability to partner up in a buying relationship. First, lets look at the market. Back in the day when I was still looking to buy rental properties, the most useful piece of advice that was available was this, you may have to look at a 100 properties and make at least 10 offers at the minimum level before you get what you want. This advice is more relevant today than ever. Why, because today the seller needs you. So get on your bike and go looking. Travel to the area that you would like to live in. Walk the streets collecting information about how many properties are available, how many properties say BANK OWNED, and head back to your computer and Zillow to do some comparison shopping. Remember this is a buyer’s market so whatever the seller is asking is now just dreamware on his/her part. The seller is now in competition with all those other sellers. The more there are the better for the buyer.
Which brings us back to you. Suppose, that all things being equal, you with your high credit score, and sufficient employment history, still don’t qualify because of a low income or lack of sufficient down payment money. This is the time to think about a buying partnership. A few years ago two friends of mine who had been sharing rent for a while decided that they wanted to buy instead. Since they had good credit, but low paying jobs, their lender suggested going in together. Between them and their parents they came up with the 20% down and then purchased a home. Two years after the purchase they had built enough equity to qualify for a second purchase by one of them and now they both have great homes. They qualified for this type of a loan because they were able to demonstrate a long time relationship. Maybe you have someone who fits this description in your life.
Or you can take a more formal approach and use an equity sharing mortgage. But it is very important at this point to remember your own frugal approach to finance. For every program that seems to offer what you want, you need to keep in mind that nothing is free. Research each situation completely and use a lawyer to verify all contracts. But that being said, your next step before anything else happens is to pre-qualify with your lender. Lock in a rate and a time frame, and if you are still wanting to buy, then in today’s market it is time to go shopping.