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Steps to homeownership for first-time homebuyers

Nancy Healy

The path to homeownership, especially as a first-time homebuyer, can be both terrifying and exciting. It is also a journey I’ve helped many homebuyers make for more than a decade. Homeownership creates stability for families and communities, but in a 2019 study by the National Association of REALTORS® Research Group, first-time homebuyers make up only 33 percent of all homebuyers that year. Many first-time homebuyers, especially low-to-moderate income (LMI) families, don’t think they can afford a home. That is simply untrue, and I will tell you why.

I specialize in first-time homeownership for LMI families. My passion lies in helping first-time homebuyers own their dream home. When I joined Bremer, I knew I wanted to focus on helping first-generation homeowners, single-parents, and young graduates just starting their careers get into their first home. With Bremer’s commitment to the community, I knew this would be a good fit. My goal soon expanded to helping families, particularly those who never thought they could afford a house, become homeowners.

Barriers to owning a home

First-time homebuyers with low-to-moderate income face many barriers to homeownership. Many have limited savings and/or limited credit history. Some have hiccups in their credit or have a history of credit denials, resulting in low credit scores. These are usually because of high student loan debt, credit card debt, history of unemployment or sporadic employment. LMI homebuyers often have limited knowledge on the process and expenses of owning a home as many of their parents do not own homes, which can result in misconceptions to homeownership.

These are the questions I hear most often from first-time LMI homebuyers:

Do I make enough money? How much can I afford?

This is a tricky part for most borrowers. It is not uncommon for borrowers to co-mingle the words “what I can afford” with “what I can be approved for”. But what you can afford and what you are pre-qualified for are two separate numbers. A single parent with four kids and a single person without kids, who make the same amount of money, could likely be approved for the same mortgage loan. However, the single parent with 4 kids has additional expenses compared to the single person without kids. So even though both can be approved for the same loan, a single parent would likely not be able to afford homes that the single person can.

Is my credit good enough?

Many homebuyers are afraid to share their credit history. But by sharing your credit history, your banker will be able to give you the best advice. As a banker, I can assure you that we are not here to judge. We are here to provide guidance and the more thorough and honest you are about your credit history, the better we can help you.

How do I fix my credit?

The sooner you get started with your credit repair, the sooner you will be ready. A trusted mortgage banker will understand the financial circumstances or hardships that led to their poor credit and can offer practical advice and practices to help them improve their credit score. For instance, it is important to pay down on your credit card balance to 1/3 of the limit. It is also important to focus on current collections that are still reporting to the credit bureaus instead of older ones.

Advice to aspiring homebuyers

Attend homebuyer workshops

You can find a wealth of homebuyer education at workshops, housing events and fairs. You will need to complete many steps in the home buying process before you can close on a house. Take a first-time homebuyer education course to learn more about the process. For example, do you know that there are closing costs? Do you know what affects mortgage rates? Homebuyer workshops will teach you ways to improve your credit score (or earn a credit score), understand the different types of financing and the types of financial statements you need to get a loan approval. You will also learn about financial management resources that can help you better manage your finances. For instance, Minnesota Ownership Center provides great information for in-person and online home buying classes.

Don’t be afraid to speak to bankers

Some LMI customers assume they will not qualify for a mortgage loan. Instead of going to a bank, they rely on online mortgage services. The downside to that is they could be cut off from valuable and reliable information as well as services and products that could potentially save them money. Experienced mortgage bankers have wide and deep ties to nonprofit and government agencies. For instance, I am part of a small team who participates in many assistance programs to help LMI families purchase their first home. My connection to those programs helps my customers. Mortgage bankers can help LMI families and first-time homebuyers identify the most suitable and affordable mortgage, which can contribute to the sustainability of homeownership.

Find a banker who is experienced in serving first-time LMI homebuyers

Many LMI homebuyers have unique needs and challenges. A banker who specializes in serving LMI families will be their best advocate because of his or her depth of knowledge and experience. Many first-time LMI homebuyers are the first person in their family to own a house, which means they need someone willing to be an educator to walk them through the process. For instance, some of my customers are single parents who work full-time. With so much on their plates, I help keep them focused on the finish line in the least stressful way possible. Many are also terrified that something will go wrong and they will become homeless. Homebuying for many LMI families is a very emotional process and they need someone experienced enough to know when to provide emotional support and be their cheerleader, and when to be realistic about their expectations.

When you are meeting a banker for the first time, it is important to consider these questions – Does the banker have much experience working with LMI homebuyers or first-time LMI homebuyers? Does the bank have a good CRA record? Is the banker familiar with FHA or other down payment assistance programs? Asking these questions will give you a sense of whether the banker understands the unique needs of LMI homebuyers.

Set a realistic budget

Many first-time homebuyers do not fully consider the expenses involved in owning a house. To better prepare for that question, I ask them what they are currently paying for rent, followed by how much extra money they have by the end of the month. I then encourage them to set a firm and realistic budget, one where their monthly payments will leave them with some wiggle room. Once they know and determine their budget, I encourage them not to push it without being confident that there are other places in your budget where they can cut spending.

Homeownership is an attainable dream. If you follow these tips and speak with an experienced mortgage banker who specializes in first-time homeownership, your dream of owning a house is much closer than you think.

Nancy Healy

About Nancy Healy

With more than 10 years of experience in the mortgage industry, Nancy Healy specializes in first-time homebuyer financing and down payment assistance programs. Her approach and insight toward navigating the mortgage process has earned the respect of valued clients, real estate professionals and fellow mortgage loan officers. Whether you are a first-time homebuyer, making your next move or refinancing your home, you can trust that she will guide you through the process. Nancy's passion for providing first-time homebuyer programs couples well with Bremer's commitment to participating in affordable products and programs. She will be with you from your initial application through closing and looks forward to continuing your banking relationship for any additional financial needs in the future.)

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