Real Solutions for First-Time Homebuying Challenges

By Lance Elliott, Community Development Mortgage Officer

Becoming a first-time homeowner in this market can be a daunting experience. There’s so much to learn from navigating financing and how much you qualify for, to all the ins and outs of different down payment assistance programs, to searching, finding, and making offers on properties that some give up along the way, frustrated and confused. However, first-time homebuyers can achieve homeownership and build generational wealth with the right guidance, strategies, and resources.

Generational wealth is a buzzword many hear as the gap between white and non-white families owning their homes increases. Minnesota has one of the most significant homeownership gaps in the United States. The technical definition of generational wealth is simply assets passed down in a family from one generation to the next. Be it cash, stocks, bonds, businesses, or other investments. The most common, and some say one of the most stable investments, is real estate.

Traditionally, residential real estate has grown at an average annual rate of 4.5 percent over the last 70 years. We’re not making any more land, and last I checked, shelter remains a top priority, so homeownership feeds two birds with one seed.

I’ve helped many individuals and families go from thinking they could never buy a house to confidently purchasing their new residence. My mission is to assist as many families as possible to become prosperous and responsible homeowners, building assets to better their children’s lives. Let’s address some obstacles and solutions to becoming a first-time homeowner.

Obstacle 1: Where to Start?

As with any journey, you need a roadmap. To create a roadmap, we first need to assess exactly where you are and, secondly, chart the path to where you want to be. As one of my mentors says, “Consultation before application.” And as I like to say, “The answer is never no, it’s a yes – just how quick or how slow.” So, start with a consultation. That can be with someone like me (a loan officer familiar with first-time homebuyer programs) or a homeownership advisor at a non-profit organization. This way, we can see what you may qualify for now or what steps you need to take to get qualified.

Obstacle 2: How Much Can I Afford?

Window shopping for homes on sites like Zillow or Redfin usually prompts this question. Depending on your situation, it can vary quite a bit. I like to use the acronym C.I.A. to help simplify the qualification process.

• Credit: Your score and credit history can determine whether you qualify and how low your interest rate can be.

• Income: This includes how much you make, your job stability, and your debt-to-income ratio (more on that in future installments).

• Assets: What do you have in savings to go towards your down payment and closing costs (which include property taxes, homeowners’ insurance, lender and title fees, etc.)?

These three areas are the most important in answering the affordability question and are as unique as your fingerprints.

Obstacle 3: What if I Have Credit Issues?

Many non-profit agencies help establish and repair credit. If necessary, this is a natural next step after your initial consultation with a loan officer or a homeownership advisor. There are credit builder programs for as little as $10/month and more intense strategies for other challenges. Some clients have needed only two months to improve their credit, and some have taken a year. Either way, when you’re on the path, it feels much better than not knowing.

Obstacle 4: How Much Will I Need for Down Payment/Closing Costs?

Again, everybody’s situation is unique. However, there are more programs than ever to get you into your new home for minimal out-of-pocket costs. Some programs only require $1,000 of your own money. This is where you need a skilled navigator of Minnesota's down payment assistance process.

Many banks have special-purpose credit programs as well as state and local organizations. Some of these can be “stacked” or “layered” to reduce your loan amount and increase your purchasing power. All these options require a homebuyer education class offered throughout the year through many different organizations. I am a certified teacher of the HomeStretch class and enjoy doing so at least once a month. You'll be notified of many other options for completing the education requirement in your initial consultation.

Let’s Get Started!

These are the most common concerns my clients have expressed over the years, and, of course, there are many more. I think following the above advice will make the homebuying process much less stressful and leave you feeling much more informed.

Ask questions! Ask a lot of questions! There truly is no such thing as a stupid question when you’re embarking on what may be the most significant financial investment of your life thus far. A home is often the largest financial asset of many households, and a homeowner’s wealth is 40 times greater than a renter’s wealth, on average. If you must pay for a roof over your head, why not gain equity in the process?

I hope this has helped and encouraged you to seek to become a homeowner. Let’s close the gap in Minnesota!

Lance Elliott is a community development mortgage officer at Frandsen Bank & Trust. With more than 14 years of experience, Lance specializes in assisting first-time homebuyers and thoroughly understands down payment assistance programs and processes. Contact Lance or your local Frandsen mortgage lender to discuss the availability and qualifications for loan and down payment programs. ^?