The American Nightmare vs The American Dream
When thinking about how to buy a home, many do not consider credit. This results in excessively high default rates of 70%. That means you have a 7 in 10 chance of never owning your home. The higher your credit score the lower your interest rate will be. Meaning, if you begin with the highest score possible there is a much better shot at actually owning a home. Now you are better informed and prepared to win against the odds. Follow the stories of two couples trying to live the American dream of home ownership.
How to Buy a Home Story 1: The American Nightmare
The nightmare begins with couple A. They purchase a home at their maximum pre-approved price. $250k is the cost of this home. The couple has edgy credit. So they barely qualify for a mortgage. When papers are signed they are paying 6.5% variable APR on their home. A high-interest rate and very dangerous mortgage.
Couple A pays on their home for years. They improve it and make it their own. Then, the ball drops. Their edgy credit and variable APR come back for the kill. You see their 250k home jumped to a 12.5% interest rate! Now the payments are not affordable. In addition, their mortgage that was already underwater starts to sink faster than the Titanic! Yikes! That’s not how you buy a home.
How to Buy a Home Story 2: The American Dream
Couple B has far more disadvantages but they need to figure out how to buy a home.They have much less income and recently had two babies as well. However, a relentless determination to make correct financial decisions pays out well. They saved against all odds for a down payment and polished both of their credit files to 750+ scores. Then a 250k pre-approved home loan! Instead of taking it they laughed. They looked at homes in the 30-80k range instead.
Couple B decided on a great home in an OK town and neighborhood. 6 bedrooms for only $35k. The mortgage was $42k after closing with a fixed rate. While not great, lower 4.25% interest. Their mortgage payment is affordable. This allows them to make extra principal payments. In the first year, they paid down their mortgage 3 years. The house appraised at $74k when purchased. Landscaping and other love leave the home worth nearly $90k!
How to Buy a Home Summary
In summary, couple A lost their home and destroyed their credit into bankruptcy. However, couple B is on a good path and will likely own their home. To conclude, it is all too easy to not understand how important credit is to owning a home. Nearly anyone can get a mortgage. But you have to have good or great credit and make many intelligent financial moves to actually own a home. I have lots of faith in my readers to take in this knowledge and avoid problems. So be safe out there! I am very grateful for each of my readers. Lastly, contact me anytime at email@example.com I am happy to hear from readers, yes that includes you!