If you’re a first-time homebuyer, you’re going to want to pay close attention to this blog. Today, we will cover five hacks for you as a first-time homebuyer to win in the real estate game, helping you get your first piece of property so that you can grow wealth while simply having your own place to live!
- Hack #1 - Credit Hack. If you’re a young person looking to build credit, there are some traditional steps you can take, like getting your first credit card and keeping a low balance. However, here’s a big credit hack: If you’re around 16, 17, or 18 years old and haven’t established credit yet, consider becoming an authorized user on a family member’s credit card. They can add you to an account with a zero or very low balance, and within 30 to 45 days, you could see your credit score soar to the mid-700s. This boosts your chances of securing favorable interest rates when you’re ready to make big financial moves, like buying a house. Worried your parents won’t agree? You can assure them that they don’t need to physically give you the card; they can simply add you to the account, receive the card, and shred it to prevent any access. I’ve personally seen this strategy work wonders for my son, who achieved a 750 credit score at 18 and secured a 2.99% interest rate on his first home purchase. It’s a valuable hack that can save you significant money in the long run.
- Hack #2 - The Down Payment Hack, addresses one of the most significant challenges for first-time homebuyers: saving enough money for a down payment. Contrary to popular belief, you don’t need 20%, 10%, or even 5% down. As a first-time buyer, you can often secure properties with just 3% down conventionally or 3.5% for FHA loans, which could be your best option. Now, here’s where the hack comes in. While you can save up part of the down payment yourself through hard work, another strategy involves receiving contributions from family members. They can provide funds for your down payment, accompanied by a gift letter, which legally allows them to gift you the money. However, if they prefer to lend you the money instead of giving it as a gift, the gift letter won’t apply. In such cases, another effective hack involves setting up a joint account where the money can sit for 60 to 90 days. This demonstrates to lenders that you have the required funds without the need for a gift letter. Just ensure transparency with your lender throughout the process and never engage in mortgage fraud. By using seasoned money in this way, you can navigate the down payment process more effectively.
- Hack #3 - The Qualifying Hack, addresses a common dilemma: you earn a decent income, but the home you want exceeds your qualifying limits. Despite saving for a down payment and optimizing your credit score, your debt-to-income ratio may still pose a barrier to securing a conventional or FHA loan. Enter the co-signer hack. While having a co-signer won’t address credit issues, it can bolster your qualifying prospects by leveraging their creditworthiness and income. Essentially, the co-signer enables you to meet the income threshold required for loan approval. For instance, if you earn $40,000 annually but have additional self-employment income that lenders can’t consider without a two-year history, a co-signer can bridge the gap. Similarly, if your spouse lacks sufficient credit but has income, their inclusion as a co-signer can enhance your eligibility. It’s crucial to avoid overextending yourself and always disclose all details to your lender transparently. By strategically employing a co-signer, you can overcome qualifying hurdles and attain your dream home.
- Hack #4 - ‘What Should I buy?’ Hack - This hack unveils a secret sauce in the homebuying process, answering the critical question: what should I buy? But before we delve into that, let’s consider the significant appreciation potential in real estate. Over the last decade, Cherokee County has seen an average appreciation rate of 9% year over year, translating to substantial equity growth for property owners. For instance, if the average price point in the area is $450,000 (let’s say it’s $300,000 for first-time homebuyers), a 9% appreciation rate would mean a $30,000 increase in equity annually! (See related article: “What Does It Cost Me (per day) NOT to Own Real Estate?”) Now, let’s discuss the types of properties that can maximize this appreciation. Targeting homes in need of updates yet still livable presents a lucrative opportunity. While these properties may feature worn-out elements like carpet and countertops, they must remain structurally sound and mortgageable. Focus on cosmetic issues such as paint, flooring, and cabinetry—easy fixes that can significantly enhance a property’s value. Take, for example, a recent listing I managed. This property, previously a rental, required extensive renovations, including flooring, deck rebuilding, and kitchen upgrades. Despite the initial investment, the property’s value skyrocketed, demonstrating the potential for substantial returns. The key takeaway? When purchasing your first home, don’t prioritize aesthetics over value potential. Opting for properties with room for improvement may require more effort initially but offers a faster path to profitability.
Hack #5 - The Roommate Hack, is arguably the most ingenious strategy. Let me share a story about my son, who at 18 years old, utilized this hack to purchase his own property. After employing the credit hack to establish a solid credit score in the mid-700s and leveraging the co-signer hack, he set his sights on a four-bedroom house near a local college. The plan was to capitalize on the demand for student housing by renting out the spare rooms to roommates.
By doing so, he essentially transformed his property into a revenue-generating asset. However, it’s crucial to research local ordinances and HOA regulations to ensure compliance. Some areas may have restrictions on this type of arrangement, so consulting with the right real estate agent is paramount.
In my son’s case, this strategy paid off handsomely. His roommates’ rental income covered his mortgage payments, allowing him to live rent-free and accumulate a five-figure reserve. This additional income also enabled him to address maintenance and renovation needs, enhancing the property’s value over time.
As a result, he’s been able to build significant equity in his property, even in his early 20s. This approach not only provided him with a place of his own but also served as a pathway to substantial wealth accumulation. It’s a testament to the power of strategic real estate investment, offering both financial stability and independence! (See related Article: “My kid is now in college. How do I avoid paying large tuition fees for housing?”)
Here’s another valuable piece of bonus information that ties back to hack #3, the down payment hack. Remember when we discussed the typical 3% to 3.5% down payment requirement? Well, there are actually three additional ways to potentially reduce that amount to zero.
- The first option applies if you’re purchasing a property in a rural area. In such cases, you can explore a loan product called USDA. Similar to an FHA loan but with a more conventional debt-to-income ratio, USDA loans offer the advantage of zero down payment. While it may be slightly less competitive in some markets, it can be a fantastic option if you find a property at a good price.
- The second option is available to veterans through the VA loan program. With a VA eligibility certificate, veterans can qualify for a zero down payment loan. If you’re unsure about your eligibility status, CONTACT US so our preferred lenders can assist you in obtaining the necessary documentation. Additionally, there are potential benefits for disabled veterans, including waived fees, which you should explore.
- The third option involves down payment assistance programs (DPA). These programs, such as Supreme Dream and Georgia Dream, provide assistance by gifting you the down payment portion. With Supreme Dream, for instance, the gifted amount sits as a second lien without accruing interest. After a specified period, typically five years, the amount becomes forgivable if you remain in the property. This means you could potentially receive a significant sum, like $10,000, in forgivable funds, essentially free money to aid in your home purchase journey. (See related article: “Down Payment Assistance Programs 101")
If you’re looking to transition from living with your parents or renting an apartment to becoming a homeowner, then this article has provided a wealth of valuable hacks that can help you achieve that goal. Whether it’s leveraging credit hacks, down payment strategies, co-signer options, property selection tips, or utilizing down payment assistance programs, there are various paths you can take to make homeownership a reality. By implementing these hacks effectively, you not only have the potential to have others contribute to paying off your home but also to build wealth through equity over time. So if you’re eager to take the leap into homeownership and secure your financial future, this article has provided the right insights for you!
If you are interested in this process, please reach out by calling (678) 389-3887 or email us at [email protected]. Get a free consultation on buying your first house!
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