Frequently Asked Questions

Get answers to our most commonly asked questions about Homeownership.

Homebuying

Why should I buy a home?

Buying a home is the best way for the everyday person to build wealth. Every time you make a mortgage payment, a portion of the payment goes towards your repayment of the loan, which is your principal payment and acts as a silent savings.

And the other portion goes towards the interest, which is the monthly amount the bank is charging you to borrow the money. Overtime, the more money that’s applied to the principle, the more you are building equity, which increases your net worth, and which you can borrow against to fund your future endeavors or cash in when you sell your property.

What is the benefit of buying a home?

  • Stability: Stable housing cost. A landlord can raise your rent whenever a lease expires, but as a homeowner, you can lock in a predictable mortgage payment for as long as 30 years.
  • Control: Freedom to make modifications, Homeownership enables you to live life under your own rules
  • Tax benefits: Every time you make a mortgage payment a portion of that payment goes towards interest, which is tax deductible Mortgage interest and certain closing costs are generally tax deductible You get most of this relief during those early years when you’re paying the bulk of your mortgage interest.
  • Improve your credit score: Buying a house can improve your credit score, especially if you don’t have a long credit history or many installment accounts.
  • Wealth Accumulation: Homeowners acquire 46 times as much net wealth as renters and Almost 60 percent of the wealth of homeowners is in the form of home equity. Owning a house provides you with a valuable asset and financial stability. That asset in most cases will appreciate in value over time and your able to leverage your equity and diversify your investments to create more wealth overtime.This makes your home one of the best investments you can make and a way to establish a financial foundation for future generations
  • Community: Owning a house you plan to stay in for a while also allows you to have an impact on your community with your taxes benefiting local infrastructure, schools, and organizations. You’ll also have a voice, if you wish, in how things are run in your area.
  • It’s Yours: This may seem fairly obvious, but it’s worth emphasizing: With a rental, you run the risk of getting kicked out at the end of your lease. With a home, you can live there indefinitely.  And isn’t there something comforting in knowing there’s a place where you’ll always have a roof over your head?

What is Equity and why does it matter?

Equity is the difference between the value of an asset and the value of the liability, the debt owed on that asset.

For example, the home values in your neighborhood have increased in the last couple of years and are now selling for 300K. Let’s just say you brought your home for 150K and your mortgage balance is around 100k. The difference is your equity.

$300,000 – $100,000 = $200,000
Current value of your house Mortgage Owed Your Equity

What does it mean to have wealth or to be wealthy?

Wealth means having an abundance of valuable possessions or money or the state of being rich; material prosperity.

Is buying a home considered an investment?

An investment is an asset or item acquired with the goal of generating income or appreciation.

Buying a home can be a long term investment. In addition to building equity by repaying your loan and increased property values in desirable real estate markets, you can turn your property into an income-producing asset.

What are the tax benefits of buying a home?

When you make a monthly mortgage loan payment, part of that payment goes toward your loan’s interest, whereas part of it goes toward the actual cost of your home, which is called the principal balance. The portion you pay toward interest is deductible: you can claim it on your annual tax return and get some of that money back.

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Preparing for Homeownership

How do I know if I’m ready to buy a home?

We suggest getting a pre-qualification. A pre-qualification, which you can get from a mortgage lender or housing counseling agency, will tell you what size mortgage loan you qualify for. To determine this, lenders and agencies look at your income, assets, and credit, then use that information to determine what you can currently afford.

Even if you don’t think you’re ready to buy a home quite yet, a pre-qualification is a useful tool to help you figure out where you stand and to plan for the future. You will know how much money you need upfront and can make your game plan and timeline accordingly.

What is the first step in the homeownership process?

The first step is to get educated. Visit a HUD-approved housing counseling agency in your area and sign up for a home buying education class. These free classes are run by not-for-profit housing organizations and taught by trained professionals. They can tell you everything you need to know about purchasing a home, protecting your credit, and a lot more.

Understanding Credit

I don’t have credit. Is that bad?

If you have no credit score, you don’t have a credit history so lenders cannot determine if your creditworthy, as a result, you may have a low or no score. People with low credit scores have a hard time securing financing.

If you don’t have a credit history—meaning you’ve never taken out a loan, don’t have any credit cards, etc.— lenders have no way to know if you’ll be a safe investment. That can make it hard to get a mortgage. But it’s never too late to start building a credit history and there are alternative options and programs that accept non traditional forms of credit.

I have judgments on my credit report. Will this affect my ability to buy a home?

Yes, but the lender will require you to pay off the judgement or lien before you close on the house.

In most cases, judgments & liens will have less effect on your score. Fair Isaac Corp., the company behind the commonly used FICO credit score, announced that medical debt/judgments would have a smaller effect on the score.

It also said at the time that debts that go to collection agencies and are repaid wouldn’t count against a consumer’s FICO score. The three credit reporting agencies will remove reports on debts that didn’t arise from a contract or agreement with the consumer, such as tickets or fines which also appeared as on your credit report.

Is no credit just as bad as bad credit?

No credit means you don’t have a credit record. If you have bad credit, it’s likely that you’ve mishandled credit in the past. It’s harder to bounce back from bad credit. If you have no credit, it means creditors don’t have a good way to predict how likely you are to pay your bills as agreed. It’s harder to move your score up to the good range when you start with bad credit.If you have no credit score, the good news is you’re starting with a clean slate.

What can I do to increase my credit score quickly?

One of the fastest ways to increase your credit score is to pay down any high credit card balances. Ideally, you want your balances to be less than 30% of your available credit.

Other ways you can improve your credit score include correcting inaccuracies on your credit report, establishing a history of paying your bills on time, and being mindful about opening and closing lines of credit.

What if my credit used to be bad but is good now?

The most important thing you can do to secure a good interest rate is to maintain a consistently good credit score, so once you get it up there, do your best to maintain it. Also luckily, because of The Fair Credit Reporting Act, or FCRA, most negative items on your credit report are removed after seven years, and even if you’re not at seven years yet, the further in your past your credit mishaps are, the less likely they are to affect your future mortgage.

What is the 7 year rule regarding credit?

The Fair Credit Reporting Act, or FCRA act states that most negative items must be removed from your credit report seven years from the first date of delinquency.

What kind of credit score do I need to buy a home?

You want to aim for a credit score of 620 or higher. The higher your score, the lower your mortgage interest rate will be, which means your monthly payments will also be lower.

If you’re not there yet, don’t panic. There are lots of ways to increase your credit score or build credit

Down Payment

Are there loans with no down payment?

Banks like to see that you have some skin in the game and that you are willing to share in some of the risk. Most banks require a minimum downpayment with the exception of veterans, Veterans do not require a down payment and can get up to 100% financing.

How much money do I need for a down payment?

Less than you might think. You can make a down payment that’s as little as 3% of the property cost.

Qualifying for a Mortgage

What is downpayment assistance?

There are many first time homebuyer programs available that provide down payment assistant grants and can be applied to your down payment or your closing cost. Research programs in your state to see if you qualify.

What factors do lenders consider when approving mortgage loans?

  • Credit. Your current credit score and usage, your credit history, and your record of paying bills and other debts on time are examined.
  • Capacity. Your current income, income history, and earning potential are examined to determine if you will have the capacity to pay back the loan.
  • Cash. Lenders look at how much money you have readily available for a down payment, closing fees, and reserves.
  • Collateral. Lenders assess the value of the property to determine if it’s worth what you’re going to pay for it.

Don’t rule yourself out if you don’t meet all four of these criteria—when you purchase with a PariGap partner, you can each bring different strengths to the table to check the box on each of the 4 Cs.