I finally have the keys to our new house. I can't believe this dream is now a reality. Although, I must say, this dream turned into a nightmare pretty quickly and now we're just grateful that the process is over. It has been a long process full of mistakes, tears, and lots of anxiety. I wanted to create a free guide for you that would help you avoid the mistakes we made and hopefully get you one step closer to your American dream with less stress.
If you're reading this thinking, "Oh, I'm no where near owning my own home," I'll tell you, we thought the same. The truth is that we could've started this process years ago but because we thought we wouldn't qualify for a loan we simply didn't even try. Don't let fear keep you from your dream, know the facts, and prepare. I've broken down the process in two parts: Prepping: What a Latina Needs to KNOW Before Buying a Home and Securing: What Every Latina ACTUALLY Needs In order to Buy a Home.
Remember when you were in school and had to prep for a big test? Think about owning a home as your big test. You have to study the material and prepare so you can get a good grade. In this case, your grade will depend on the type of loan you get combined with the actual home you end up with.
If you're 2, 3, or even 5 years away from owning your first home, educate yourself. Ask yourself, do I really want a home? Am I ready to take on the responsibility that comes with owning a home financially, physically, and emotionally? If your answer is yes, then there are things you can start doing now that will help you get one step closer. Note that if you have a spouse the same applies.
This is very important as it can make all the difference and save you money. As Latinas, many of us were brought up to not really talk about money. The most advice I got from my mom was to save in a piggy bank. My mom had no idea what a credit score was or what the stock market was. Don't become your mom.
The higher your credit score, the lower your interest rate, the more money you can save. There are things you can do to improve your credit score and it doesn’t mean you have to be debt free. I thought I had to be debt free in order to qualify for a loan. Not true, however I had to understand my debt to income ratio and work towards what lenders were looking for (under 30%) and know my debt to credit ratio to improve my fico score. You can run your credit reports through the three major credit reporting agencies: Experian, Equifax, and Transunion. Make sure to clean up any issues. You'd be surprised at collections, debts, or other things you may have had no idea about.
Debt to credit ratio basically means the percentage of your credit line or approval vs what you owe. For example, if you have a credit card with a $1000 credit limit and you owe $400, your debt to credit ratio will be 40%. In order to lower your "DTC" you will either have to owe less or have a higher credit limit. What I did was call all of my credit card companies and have them raise my credit limit while trying to lower my debt to 25%. If you can get it lower, great! But don't kill yourself thinking that you have to be debt free. Having a lower debt to credit will help increase your fico score.
Debt to income ratio doesn't necessarily affect your fico score but it will affect your chances of securing a loan. Typically, most lenders are looking for a debt to income between 25-33%. Calculate all of your income after taxes vs everything you owe for a given month. If you don't fully understand this concept, I highly recommend simply taking all of your bills and check stubs to a loan officer and have them do the calculation for you. They will also help you figure out how much home you can afford. Just make sure they don't run a credit check as this will lower your credit score, plus you just ran one right?
Make your money work for you! Have a 401K with company match? Maximize that! Open up a Roth IRA. Don't be afraid to invest in mutual funds or the stock market. Yes, it can be a little risky, but your return may be greater than a mere 1% at the bank. There are also banks that do automatic investment or automatic savings plans. After years of contributing as little as $25 a month to my Roth IRA, I was able to pull out almost 40K! I wasn't penalized for pulling out my contributions and as a first time home buyer I was able to take out an additional 10K. They key is to start now! The sooner the better as you continue to build wealth and make your money work for you!
When I met my husband, his credit score was about 600 while mine was over 720. I made a conscious decision to add him to one of my credit cards to help him start building his credit. Today, his credit score is 720 while mine is 780 though this could have gone very wrong. I've met many women who helped their boyfriends by co-signing loans, car loans, credit cards, etc, only to find themselves bankrupt or with credit scores through the floor and unable to get themselves back up. Before you sign anything or add anyone to any account, understand what you are really getting yourself into. If this person is not able to make the payments, guess what? You're the one stuck with the debt and the problem. No seas boba!
The road to buying a home means that unless you are rich, you have to be resourceful in order to save more money. You know what you are willing to swap out and what you just can't. I know that I just can't forgo my $30 Nars foundation but I'm ok with the $6 drugstore mascara. Check out dollar and discount stores for everyday necessities. Use Groupon and Living Social for entertainment and sites like Retail me Not and Ebates for online shopping. Spend Less and Save more.
Many Latinas come from a background of complacency. We've been afraid to ask for more. Stop. Don't be afraid to ask for a raise. The worst that they can say is no right? OK, so maybe your boss won't give you a raise, how about asking for overtime? Maybe you're a stay at home mom saying, "But I don't have a job." How about babysitting? How about talking to other moms at your kid's school for side gigs. Have extra clothes at home? How about selling them to places like Thred Up or Buffallo Exchange? Have Books lying around? You can always sell on ebay. Every little bit counts. I made over $200 selling books and another $200 selling old clothes. Be creative and resourceful, you'll be surprised.
If you have a dream of owning a home, dreaming is simply not enough. You have to have a game plan and goals. Don't make the same mistakes we made. Through our experience, it is my hope to empower you and get you one step closer to owning your first home. Download our Mi Legasi Home Buyer Prep Checklist for FREE to get you one step closer to owning your dream home.