We’re often told that owning a home is the ultimate dream come true. Although it won’t be the right thing for everyone, for many, that is correct. Owning a property means stability. It means a good investment. And, on top of everything, it’s a status symbol that can’t be denied.
Yet denial is something many aspiring homeowners will hear a lot when they are attempting to take their first steps up the property ladder. There are so many obstacles in the way when it comes to owning a house. Trying to get past them and get a yes instead of a no can be tricky.
It’s not impossible, however. First-time buyers are able to buy properties. Sometimes it just takes a little extra planning and thinking to get there. With that in mind, here are some of the biggest obstacles to owning a property and what you can do about them.
Rising Property Prices
It can feel as though the property market is playing a prank on first-time buyers sometimes. They’ll be just about in a position to pay their down payment and afford a mortgage, when house prices rise again. Everything is suddenly out of reach.
This happens time and again, and eventually, first-time buyers risk being priced out of the market. This added to a limited housing supply (because fewer people feel confident to sell and want to wait until the market is more stable), means that it’s becoming harder and harder to be in a position to buy a property. There can even be bidding wars which inflates prices even more. And so it goes on.
The solution isn’t an easy one. But there is still something that can be done. It’s all about saving more money. Which might be the last thing you want to hear, but it’s a necessary thing to do.
By streamlining your expenses and reducing any unnecessary spending, you can put more into savings. This helps you save more quickly. Then you can try to catch up with the market before it runs away from you.
The $25,000 first-time home buyer grant application might also be something that can help if you need help with your down payment and other expenses and you meet all the criteria. It’s worth looking into.
Plus, why not look into different areas? You know the prices in the area you’ve chosen to live in. You’re basing all your financial decisions on that. But what if somewhere close by were a little cheaper? Even a small percentage difference could mean you would be able to afford to live there. You might get on the property ladder more quickly.
High Mortgage Rates
Mortgage rates are something to watch out for when you’re investigating all the different costs associated with owning a property. Again, it’s amazing what the difference a few percentage points can make. But it could be the difference between being able to afford a mortgage or not.
Also, once you have a mortgage, you need to consider how you would continue to pay it if the interest rates on your mortgage rose. Which could easily happen. Would you still be able to afford the repayments? If not, you may not be ready to own a property, even if you can afford it right now.
Credit Scores
Did you know that having a good credit score can make a difference when it comes to your mortgage rate and owning a property? A good or great credit score shows the lenders that you’re good at handling your money. It shows you can pay back your debts without any issue.
On the other hand, a bad credit score makes you much more of a risk. Lenders would need to be sure they’d get their money back from you. The way they do this is to offer the higher interest rates to those with poor credit scores. In this way, their risk is reduced. They’ll make more money more quickly from the deal.
So it makes sense to try to improve your credit score as much as you can before you apply for a mortgage. You’ll get the better rates. Make sure you pay every bill on time, you reduce any existing debts as much as possible, and you don’t take on too much additional borrowing. Ten, your credit score will get better. That means your potential mortgage rates will get better too.
Of course, it might just be that the rate you’ve been offered isn’t the best one out there. Maybe you can already get better ones. It’s certainly worth doing some comparison shopping to see if you can improve on the offer you’ve been given.
Just because one mortgage company offers one rate it doesn’t mean another wouldn’t have a better deal for you. Using brokers can help even more, as you’ll get a much larger pool to choose from.
Lending Criteria
Ever since 2008 and the global financial crisis, it’s become harder to get a mortgage, thanks to much more stringent lending criteria. Lenders have become more cautious about who they give mortgages to. And that makes sense; after all. Not being careful with lending was one of the reasons the crash happened in the first place. No one wants to run the risk of the same thing repeating itself.
The problem is that someone who would have been able to get a mortgage back then now can’t. Even though their own situation hasn’t changed. This tighter lending criteria has caused quite an issue for owning a property. Now, lots of people are finding they don’t fit with what’s needed. This is especially true for first-time buyers, the self-employed, and people with low credit scores.
The best thing to do here is to make sure your finances are strong and stable. Use your money in a responsible way. As we’ve said above, improving your credit score is a great idea. But it’s not the only thing you can do.
Using a Co-signer
Another option is getting a co-signer or guarantor to help you. If you’re having trouble qualifying for a mortgage on your own (or even with a partner), getting someone to guarantee your mortgage can really help. Lenders will be much happier to lend you enough money to buy the property you want.
A guarantor is someone who promises to pay the mortgage on your behalf if you’re unable to. So it’s certainly not something to be entered into lightly. But if you know you’re making enough money and it’s just that the criteria are too strict, having a guarantor could get your mortgage application over the line. That’s because the lenders will feel satisfied that they’ll get their money back no matter what happens. So, as long as you meet other criteria they set out, some of the rules can be a little more relaxed.
Student Loan Debt
Going to college is often the best thing you can do to advance your career. That’s especially true if you want to get a job with a salary that will allow you to get a mortgage.
Ironically, however, the student loan debt you have to take on if you want to do that can be what means it’s difficult to actually get that mortgage. This is because it affects your debt-to-income ratio. Although it’s something you’re paying automatically, and you have a good reason for taking on the debt, it sadly still counts. It can be something lenders are comfortable in dealing with.
One solution to this problem is to refinance your student loans. You can find deals that will help you make smaller monthly payments. This helps lenders see you’ve got more disposable income. Be aware. If you’re borrowing money to refinance the loan, this could be another negative mark against you. And it can often be worth waiting a while before applying for a mortgage once you’ve done this refinancing.
Alternatively, you can use the money you’re putting aside for a down payment to pay off as much of your student loan as possible. This might sound counter-intuitive. If you can get rid of the student debt, you’ll actually have more money. You can not only top up the money you used, but add to it. This helps you with your down payment and proving to lenders that your debt-to-income ratio is manageable.
Make sure you research as many different schemes to help you with your loans as possible. There are a number available that could make a big difference. These would free up a significant amount of money. Perhaps enough for a mortgage. Or at least something that would help you save for a deposit.
Final Thoughts
Owning a property is not the most important thing in the world. And if you can’t do it, you shouldn’t feel bad. However, if you really do want to be a homeowner, the above points should help you get past any obstacles you were facing, so you can make your dreams come true.