If you want to buy a home but don’t think you can for any of the following reasons, this article aims to give you the right information so you can make smarter decisions and open yourself up to a world of wealth, possibility, and realistic opportunities. Expectations.
The truth is that you are being unrealistic when you believe that the following reasons are true:
I can’t buy a property now because…
- I don’t have 20% down, let alone 5%, let alone 1%.
- I have no money for closing costs.
- I won’t qualify for a loan (I have bad credit, I don’t make enough money, I can’t prove my income, I haven’t been in the same job long enough, etc.)
- Market prices are too high now.
- I don’t want to live in a bad neighborhood and that’s the only place I can afford one right now.
- I am unable to pay my mortgage payments with my current income.
- Fill in the blank.
I am here to tell you that you CAN buy a property, regardless of any of the above.
In this day and age, there is absolutely NO reason someone can’t own their own home. The strict days of stable, well-paying job loans with excellent credit 20% down are over, replaced by pre-bankruptcy and income-reported no-down-payment loan programs.
With today’s wide variety of diverse lifestyles, there are a myriad of opportunities and programs created for any and all possible situations. Businesses need to make money, and the best way to open up to a wider range of customers is to offer services for the wide and varied circumstances of each individual.
Many lenders today offer little to no down payment schedules, bad credit forbearances, and even no proof of employment or salary requirements (in lender parlance, called “declared income programs” where you simply declare your income to the lender without having to prove it with pay stubs, W2’s, etc. This is widely used by freelancers and consultants).
In addition to the myriad programs offered by lenders, there are now government grants and services (often free) available to low-income, low-reserve homebuyers, as well as many first-time homebuyer programs. Government programs and many private loan programs also offer closing cost assistance (costs required up front to pay lender fees, escrow and title fees, etc.), and some programs require the seller to pay for most of them.
For a list of government grants, go to http://www.cfda.gov (The Catalog of Federal Domestic Assistance) or http://www.firstgov.gov (The Official US Government Website .). Click on “Benefits and Grants” to access your grants page.
“Okay, that’s great,” you’re thinking, “but the housing market is so inflated right now, even if I could qualify for a loan, how am I going to afford a house in the neighborhood I want?”
Welcome to the wonderful world of foreclosures, tax auctions, and rehabs (also known as repairs)! It’s a myth that all foreclosures and delinquent property taxes are in poor, rundown neighborhoods. One good thing about foreclosures and delinquent properties is their indiscrimination. They occur in gang-ridden crack neighborhoods, middle-class neighborhoods, and elite million-dollar communities alike.
Another benefit is that they are usually much cheaper than the lowest priced house in the same neighborhood. We all know the difference between retail and wholesale. You could go to the mall and buy a $20 retail shirt or you could go to the city’s garment district and buy the same $10 wholesale shirt, or better yet, with the advent of the Internet, you could do all your buy wholesale online in the comfort of your pajamas.
The same is true for real estate. If you wouldn’t spend that extra $10 to buy a shirt at retail, why would you spend an extra $10,000 (or usually more) to buy a house at retail?
In the industry, publicly traded houses are considered retailers. Homes you find through foreclosures and tax auctions are considered wholesale. These are discount homes, available at a low price for a quick sale, usually because the bank or county is simply looking to recoup the money they spent before (and after) the buyer defaulted. This equates to big savings for the educated shopper.
Rehabilitating is buying houses that are a little less than perfect and fixing them up, either to sell for a profit or to keep as a residence. Some people enjoy the challenge of buying a property that needs a complete overhaul (new roof, extensive remodeling, structural fixes, etc.) while others prefer a “cosmetic fixer,” a home that needs a little touch-up paint here and there. , some flowers planted on the patio, maybe even a new kitchen counter, etc.
Cosmetic fixatives are a fun and easy way to make money. You have the opportunity to do some artistic handiwork (even if you’ve never done it before) and earn money at the same time. The quick wins you make can be transferred to a bigger and better house, you can repeat the process over and over again, rising from a $50,000 house to a $500,000 house in just a few years, and the best part, that’s it! tax free!
Called a “1031 Exchange,” the proceeds you receive from the sale of the home may be tax-deferred as long as you continue to purchase a home of equal or greater value with the proceeds from the sale. Unlike the direct sale of a residence, there are no occupancy requirements or residency time restrictions for a 1031 Exchange. For a residence, federal law states that you must live in the home for 2 of the 5 years of ownership to avoid capital gains tax. You can choose to live in it for 2 years and deposit the profits, yes, tax free! – or you can choose to turn it around and do a 1031 Exchange – yes, tax deferred!
If you’re sitting around scratching your head, thinking this all sounds like too much work when all you want is simply a home to call your own, there’s a good chance you can find a great deal on the retail market too.
If you’re convinced, or even a little convinced, that you might be able to buy a home after all, here are some steps for the average traditional homebuyer.
- The first step is to find out how much you are willing to spend. Get your finances in order by evaluating your current total monthly income versus your current total monthly expenses. If she is paying $800 in rent now, how much more can she pay per month? If you don’t want to pay more than $800 a month, but you really can, I urge you to look at the big picture. Is it worth spending a little more per month now to ensure you have an investment that could earn you significant returns a few years later? Is that $800 a month (and a little more if necessary) worth investing in YOUR future prosperity and not your landlord’s? Is it worth living without Direct TV or 100 cable channels or 3000 cell minutes in the short term to invest in your financial freedom in the long term? However, be careful not to overstretch. You still want to enjoy your home without cursing it for bankrupting you. Depending on your financial situation, it may not be necessary to cut costs or work hard to buy a home, but if so, how much is owning your own home worth to you?
- The second step is to find the right lender or broker. You need to find a lender/broker to find out how much home you can afford. They will tell you how big a loan you qualify for, based on your income vs. your debt (debt-to-income ratio), approximately how much your monthly payments will be, and how much your up-front costs will be, if any.
- Once you find the right lender, the third step is to find an agent. As a buyer, you do not pay an agent. The agent makes a commission from the seller’s final price. The commission (usually 6%) is split between the buyer’s agent and the seller’s agent (and their broker). If you can, be your own agent. If you find a home you like on your own, you can often offer the seller a lower price, since you won’t have to pay some of that to the agents and can afford to lower the price for you. Sellers often take agent commissions into account when setting the selling price.
- The fourth step is to know the market. Knowing what to buy, when to buy, and where to buy is key to making money in real estate. Look around the market, talk to agents, sellers, buyers, investors, anyone who might know the neighborhoods you’re interested in. Be open to neighborhoods you haven’t thought of or heard of. Your agent can also help you with this. If you have found a good broker, they will share with you their knowledge of the market based on their experiences of being in it every day.
- Know what you want and why. There are numerous ways to make money in real estate. They range from simply buying low and selling high, to rental rental properties, buying notes and certificates, the aforementioned forms, and more. Do you want to make a quick and instant million? Or do you want a modest but steady stream of income to keep you comfortable? Or do you just want to buy a house to live in, a house your children can grow up in? Study your options and choose the one that appeals to you regardless of whether you know anything about it and whether you think you can do it or not. Find your niche in the market and follow it.
- Learn from others who have done it. If your knowledge is insufficient due to lack of experience, let someone else’s experience guide you. Take courses, read books, talk to other people who have paved the way for you and have achieved success in what you want to do. Don’t listen to anyone who hasn’t done it themselves, especially those who tell you that you can’t. You “borrow” someone else’s knowledge until you gain your own through experience. There are a lot of materials out there to get you started.
Above all, the BEST thing you can do for your success is believe in yourself, believe that it CAN be done, and go out and do it! Stop wasting time making excuses why it can’t be done, and start using your time more effectively by finding ways it can.