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“Now more than ever, your home is a comfort,” says Sam Sharp, Executive Vice President of National Sales, Guaranteed Rate.
While COVID-19 fuels a competitive fall 2020 real estate market, it also fosters a new appreciation for “the home.” However, some first-time home buyers (and even current homeowners) struggle with the financials of homeownership – from buying their dream home to creating a monthly expenses list. Homebuyer and owners need to understand how to approach their home and their wallet in order to enjoy homeownership.
“You need to be comfortable paying for your home,” says Sam, who has been in the mortgage industry for more than 18 years. “You don’t want to be in a position where you’ve compromised your lifestyle. Now you regret buying this home because you can’t do things that made you happy.”
Whether you’re looking to move into your first home or your third, Sam has essential financial tips to help you learn how to afford a home (and be happy in it, too).
Tip #1: Focus on costs, not interest rates
While interest rates contribute to the overall price for your home, home buyers need to focus on their overall expenses and costs of owning a home.
“When you pay a mortgage, you don’t write an interest rate on the check,” says Sam. “You write a monthly payment, so you need to understand what the costs are.”
Home buyers should consider all expenses when buying their dream home as these costs will affect their overall monthly budget. (Check out #5 for home expense tips!)
Tip #2: Find the mortgage or loan that fits your situation
Affordability is a major factor when it comes to choosing the right loan program for your unique situation. For example, Sam advises home buyers in a temporary housing situation to consider shorter-term options and adjustable rate mortgages.
“People see ‘adjustable rate mortgage’ as a bad term, but it’s not,” says Sam. “It’s a way to better control your finances.”
If the homeowners may look to keep their first property and rent it later, then perhaps fixed mortgage rates would be better.
“We’ll look to see what is going to allow [the home buyers] the mortgage payment they’re comfortable with and make sure that corresponds with the price point,” says Sam.
Paying into a loan provides a homeowner with leverage in their mortgage rate and finances.
“There’s nothing wrong with paying into a home loan,” says Sam. “You’re borrowing other people’s money. It’s cheap, and it puts you in a position where it may cost you a lot of interest. It also allows you to take advantage of that homeownership.”
Tip #3: The mortgage industry has gone digital
Over the last two decades, the mortgage application process has evolved. Where loan officers used to visit homes to sign contracts and send rates via fax machines, technology has streamlined the process.
“We live in a world where the majority of our applications are taken online,” says Sam. “I don’t go inside homes anymore to sign mortgage applications. Clients don’t want me there anyway, especially given the current environment.”
Instead, Sam uses online forms for data entry and works with automated systems to confirm an applicant’s employment information. No longer are tax returns, pay stubs, or W2’s needed. In fact, credit scores, checking accounts, and debt-to-income ratio are also verified online.
“We call this One Day Certainty,” says Sam, “This means that someone can actually apply for a loan and within minutes have an actual loan approval that’s clear of any conditions.”
Home buyers only then need to clear the title from the seller or if they’re refinancing, sign an application to close.
“Technology allows us to do a lot more in less time and provide better service,” says Sam.
Tip #4: Don’t be discouraged if you can’t get a loan right now
The Truth in Lending Act (also known as Regulation Z) requires mortgage lenders to determine if an applicant can repay their loan. (These loans are called “qualified mortgages” or QMs.) Unfortunately, the current credit model for determining an applicant’s repayment ability hasn’t been updated in more than 30 years.
Compounding this issue is the loss of many non-QM lenders, who surveyed qualifications other than traditional credit rating models. These brokers stopped lending during COVID-19, which has made it difficult for certain applicants to obtain home loans.
“It’s been very difficult to get a loan for someone who’s self-employed,” notes Sam. “There are some well-qualified people who are doing very well with self-employment who can’t get a loan right now. Their calculation isn’t a make-sense type situation.”
Tip #5: Stay on top of home maintenance
When buying a home, there are two major cost considerations – the down payment and the closing costs. Afterwards, homeowners must incur the monthly mortgage payments and maintenance expenses.
“That new car smell of owning a home wears off pretty quickly,” says Sam, “and if you have improper home maintenance, that can turn very bad, very quickly.”
Poorly maintained homes generate high repair costs for homeowners, many who may not be prepared. Sam sees cases where homeowners weren’t paying attention to issues on the property or didn’t understand the maintenance needed, which led to unexpected expenses.
“Clients reach out to me and say, ‘I need a line of credit because I need to make some repairs,'” says Sam.
For example, replacing a furnace can cost anywhere from more than $4,000 to over $20,000, and an inefficient furnace generates higher utility bills. In contrast, a well-maintained furnace can last up to 20 years and will result in significantly lower utility bills.
That’s why you need vipHomeLink
“Maybe you’ve never had to think about maintaining your home,” says Sam, “but proper home maintenance will save you money.”
The vipHomeLink home management app helps homeowners to feel safer and more comfortable in their dream house. Beyond preventative maintenance, our home management app provides an understanding of what is in a home and how to take care of it. We also help homeowners to save money and time, and gain peace of mind with first-time home buying tips, maintenance tips, and other important homeownership knowledge.
Sign up today with a monthly or annual membership and simplify your homeownership experience.