By: Jo Garner, Mortgage Consultant Evolve Bank and Trust
Radio Talk Show Host on the Real Estate Mortgage Shoppe on News Radio AM 600 WREC and IHEART Radio www.MortgageLoansBlog.com 7-17-14
Melody drove slowly through the neighborhood where she grew up and contemplated what it would be like to own her own home like the cozy house where she grew up. At 29 years old she mistakenly thought, with her college degree and a few years in the work force, she would be able to buy her own house. But student loans, a car loan and the price of food and gas kept eating away at her income, making it hard to see the way to grab onto this dream.
Listening to her older friends talk about the nightmare they experienced because they bought way too much house too soon and then lost it in the market crash, gave her the rationale she needed to keep renting—but the desire to own her own place and start building equity and wealth was scratching through the surface. She was determined to find a way to own a piece of America and start to build her nest egg just like her parents did. She reached for her cell phone.
She would call that mortgage professional she had been hearing on the radio every Saturday and find the solution. The solutions for Melody were ready and available because she was about to connect with a real estate financing professional that knew how to rise to the student-debt challenge and use resources unknown to Melody and her generation of would-be first-time homebuyers.
Student loan debt has been multiplying like a virus, infecting the real estate recovery and the economy at large, dampening the ability for young Americans to borrow to buy a home. The Federal Reserve Board recently reported that the percentage of homeownership was reduced twice as much for people saddled with student loan debt than those without student loan debt. Dave Stevens, Mortgage Bankers Association President pointed out, “Student loan debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young people’s ability to borrow for a home, and that’s going to impact the housing market and the economy at large.”
How do lending professionals open the door for first-time homebuyers to own their own homes instead of throwing money into rent to pay for someone else’s properties? Since the biggest deterrent to homeownership seems to be the high balances and payments on students loans, the first place to start is with solutions to refinance or defer these student loans. If the student borrower is still in school, but wants to buy house, then getting student loans deferred for over a year from the real estate closing date will allow the mortgage company to exclude the payments on the student loan debt, provided the student loan payments have been paid on time.
Another solution offered by the lending industry, which many younger borrowers do not realize is available, are the many down payment assistance programs to help them get into their homes for very little money down if they pass certain requirements. Some down payment assistance programs allow the buyer to get into their home for zero or less than $1,000 down payment. Currently, other 100% loans like Veteran Administration home loans and USDA Rural Housing 100% loans are great for connecting them with a way to achieve homeownership without a hefty amount of upfront funds.
Education is a great tool for helping prospective homebuyers in their 20’s and 30’s make smart choices on loan products and ways of owning real estate and retaining it. There are several HUD-approved homebuyer classes in cities and towns around the country that have a very effective training system for showing prospective homebuyers how to budget money, what loan products are available to first-time home buyers, preventative maintenance needing to be done on a house to keep at bay major repair expenses and a host of other helpful tips like when not to file an insurance claim. Real estate buying clubs can be helpful or special seminars provided by banks or other businesses can show a prospective home-buyer ways to qualify to buy a home rather than rent. For information about HUD-approved homebuyer classes in cities around the country, go to www.hud.gov.
Cosigners are a good source of help in qualifying for a mortgage, but the homebuyer who will be occupying the property needs to have a plan and the means to make the house payments. A good example of this strategy is the college student who wants to own and live in a property near the college where they will be attending and needs a parent to cosign with him. Presumably, when this person gets out of school, he (or she) will have a job making enough money to pay for the home without the parent’s help, or there is the option of selling the home.
A few weeks after contacting her loan officer, Melody was able to switch from an apartment lease to having keys to her own, spacious home with a payment much less than the amount she was paying in rent. For Melody, the solution to reach homeownership was to consolidate her student loans to a very low payment plan, use a first-time homebuyer down payment assistance program in her area with a low interest rate from a government type home loan. Melody was acting on her philosophy that the way to start building wealth is, not to wait to buy real estate, but to buy real estate and wait.