Jennifer Beeston’s: Preparing to Buy a House In 2023?? (Step by Step Guide) 🏠 from October 27, 2022
So, I get a lot of calls where people are like, "I just don't know what to do. What should I even do?" And I'm like, "Okay, so I'm going to walk you guys through the questions that I ask people, and what I advise them to do so that you guys can do this as well. And after we do these three questions, you may go, 'I'm ready, I'm ready.' And if you're ready, reach out, guys. We'd love to get you pre-approved. Okay, so here's how the conversation usually goes.
Starting Without Credit? "Don't panic and start opening credit cards willy-nilly. Instead, let's look at your rental history. Have you been paying rent on time for two years? What about your bills? This matters because there are special loans for those without traditional credit."
Um, I'm a first-time homebuyer. I have no idea what I'm doing. Like, what do I even do? Okay, how's your credit? I always start there. And the reason I start there is if someone's trying to figure out if they're going to buy even next month or six years from now, credit's important. So, if someone says, "I have no credit," okay, my next question is, "When do you want to buy?" If they want to buy within the next six months to a year, I'm not going to say go open credit cards. I'm going to say, "Okay, can you show me a two-year rental history of paying on time? Do you have bills that you can show me that you've paid on time consistently?" The reason I'm asking that question is that there are loans for people who don't have credit scores or a traditional credit history. It's called non-traditional credit.
Building Credit for the Future: "Plan to buy in a few years? Here's my tip: Start with a single credit card. Use it for small purchases, like gas, and pay it off each month. After six months, add another card. Keep it simple, and you'll build a solid credit foundation."
Now, if they say, "I want to buy in five years," my top tip would be, "Okay, you need to start building credit." And you know, with building credit, you're going to open up a credit card, you're going to put one tank of gas, and you're going to pay it off every month. That's all you're going to do for the first six months. After that six months, open up a second credit card. You're going to do the same thing with both of them. After that, a third credit card. Okay, so I'm doing this in six-month installments, guys. Same thing. That's it. That's all the magic. That's what I'm telling my son to do right now. He just recently turned 18, and that's what I'm telling him to do to build his credit, and that's what I'd suggest for you guys.
Understanding Loan Requirements: "Different loans have different needs. For FHA or VA loans, aim for a credit score over 580. Thinking conventional? You'll need over 620. And for those big jumbo loans, 700+ is your target."
Okay, so if you have no credit, that's how we'd approach it, based on your timeline. Now, if you're like, "I have great credit," okay, cool, great, that's great. Now, what is great credit? People interpret it in different ways. So, the bottom line is this: if you're looking at an FHA or VA loan, I need your credit score over 580. If you're looking at a conventional loan, I need your credit score over 620. If you're looking at a jumbo loan, meaning we're talking million dollars plus, really 700 plus, okay, for credit. So, it depends on what you're ultimately going to be looking at, what credit score will be required.
Now, a lot of times, people are in this weird cycle where they're like, "I'm 720, but I know if I get to 730, then I'm ready." Guys, 720 versus 730 means nothing to me. Nothing at all. You know, it's not going to change how I qualify you. So, sometimes people go down rabbit holes on YouTube, where if you go down the credit rabbit hole, you will be terrified. You will never let anyone pull your credit. You're going to wait till you get an 800. You're going to be 126 before I even pull your credit. So, be careful how deep you get into the rabbit hole. Credit is important, but it's not worth getting obsessive over.
The Credit Score Obsession: "Here's the deal: 720, 730, it's all the same in my book. Don't get sucked into the credit score vortex on YouTube. It's important, yes, but don't lose sleep over it."
Spotting the Problem: "A credit score with a 4 at the front? That's a red flag. In the low 5s? You've had some bumps. It's crucial to tackle these issues head-on."
Now, if you have bad credit, so what's bad credit? If it starts with a four, it's bad. If it's in the low fives, there's been some drama. And if you have credit with drama, it's important that you resolve that drama. Okay, because we need the score to qualify, but also, if there's active drama going on with your credit and you buy a house, it's not going to be putting you in the best position. You still have a mess to clean up. Okay, and sometimes lower credit scores are because of something like the person didn't really have credit, but then they have two medical collections, or you know, they had one credit card and they just never paid it, but they never tried again.
Rebuilding Strategies: "Think about consulting a credit specialist, but be wary of certain firms. I personally recommend Ken Stray at Scorwell. He's legit and offers free consultations. Trust me, he's one of the good ones."
In that case, you know, I do think you should be working with an expert. You should be rebuilding and cleaning your credit. Okay, now experts, wow, that's a loaded, loaded, loaded statement. Would I recommend any company with the word "law" in it? No, no, I don't. I mean, I have a guy I recommend. I don't get a referral fee. I don't do anything creepy like that. I just like them, and clients seem happy with him, and he doesn't rip people off, which is a win. His name is Ken Stray at Scorewell. I'll put his phone number in here. He does a free consult. He's a good guy. That simple. Um, but if you have a lot of drama, you need to work on that credit before we even go to the next steps. Okay, because that is the problem.
Job History Matters: "Lenders like me? We want to see that you've been working consistently for two years. And no, it doesn't have to be the same job, unless you're on commission."
Okay, so number one's always credit. What needs to be done? Now, if your credit's fine, okay, cool, let's talk about income. What is your income? Now, my next question is always going to be, "Okay, you know, what do you do for a living?" Okay, I work at Amazon in the warehouse. Cool. Have you been there for a couple of years? No, I just started there within the last year. Okay, where were you before?
Okay, what I'm looking for as a lender is a two-year history of employment. I am not looking for two years at the same job. The only time I'd be looking for two years at the same job is if you're commission, meaning that you only get paid on what you sell. For that, I'm probably going to be looking for two years at the same job. For a salary job or hourly job, I'm just trying to make sure you've been employed for at least two years. Okay, that's the rule. Now, if you had a job gap, meaning that like maybe you were employed for five years, but then you lost your job — a lot of people lost their jobs — and then two months later, you got another job, is that a problem? No, no, as long as this job, I can show what your income is, I'm good.
Hourly and Salary Jobs: "If you're salaried or have a stable income, you're golden. Hourly workers, keep your hours consistent. Lenders will notice if there's a big swing in your work hours."
Okay, now let's just stick with the Amazon warehouse worker for a minute. So, I'm going to be saying, 'Okay, cool. Do you always work 40 hours a week?' I'm asking them this because I know they're not salaried. There are certain jobs where they're not salaried. If you are a salaried employee, congratulations, you are easy to qualify, my friend.
If you get VA disability, Social Security Disability, or retirement pensions, you guys have set income. You are easy to qualify. You know, move to the next step, right?
Commission-Based Incomes: "Earning commission? I need to see two years of history. Increasing income is great; decreasing, not so much. Be upfront about what you earn."
If you guys, however, are commission or hourly, I always dig in further. And the reason I'm digging in further is I'm trying to figure out if I'm going to be able to calculate your income. So let's say my Amazon guy is like, 'Well, some weeks I work 20 hours, some weeks I work 50, some weeks I work 10.' You know, since he's been there for a year, I may have enough to get an exception. If he had been there for two years, we're going to do an average of his hours.
Okay, so if you are an hourly worker and you want us to use 40 hours, you need to work 40 hours. Sometimes we'll have a client where we do the verification of employment with the employer, and the employer says '40 hours guaranteed,' and then we see pay stubs, and they're like 26, 38, and we're like, 'What's going on?' They're like, 'Well, I didn't want to... I could have, but I didn't want to.' And we're like, 'Cool, you're now variable income,' which means instead of counting 40 hours a week, I'm going to do a two-year average. That does not benefit you most of the time. So, it's really important that you guys are mindful of that.
With commission people, I'm always going to be asking, 'Do you have a tier history of receiving commission?' Because if you're commissioned, we need a two-year history. Same with self-employed. Okay, there is an exception to self-employed, but I'm not going to go into exceptions. I'm going to try to keep this as clean as possible for you guys, just to give you a good idea. So, if you get commission income, I'm going to be trying to figure out, okay, how much, if you have a tier history, how much did you make last year versus this year? If you're declining, it's a problem. If it's going up, cool. If it's the same, cool. If it's going down, problem. Okay, so we talk about this upfront because what I'm trying to figure out is, are you ready to fill out that application?
Now, if your credit's fine, your income's good, you're like, 'Yeah, I've been at my job, or yeah, I have consistent hours, I know what I'm going to make,' right, like, do you know how much money you're going to get every month? Do you? Okay. And if you're like, 'Not really, it kind of changes,' we're going to be looking at that. How much is it changing?
Looking at Your Assets: "For VA loans, assets aren't a big deal. But for FHA or conventional? Yeah, you're going to need a down payment. No money saved? You're not quite ready."
Third, assets. Okay, so there are certain loans where what's in your bank account isn't going to negatively affect your ability to qualify. VA is a great example of that. So, with VA, we do it all the time. You know, it's a zero-down loan, we get the seller to pay the closing costs, the real estate agent, of course, is negotiating that.
You know, people still need money to pay for an appraisal and a home inspection, but we're doing it without having a huge amount of assets. Now, does having assets in your bank account help you when you're buying a house? Yeah, because when you buy a house, often they're not perfect. So, stuff can go wrong. So, having money to fix it if it goes wrong is a good thing to have. Okay, but certain loans, not a necessity.
Now, if you're doing FHA, three and a half percent down, or conventional 20 down, or conventional three percent down, there are all these different programs. But you know, let's say you're trying to buy a $700,000 house. I'm going to need a down payment. And if you have no money, you're not ready yet. And so what I'll tell people, especially like, in an instance, sometimes the payment that they're going to is $4,000 a month, and they're paying $2,000 a month in rent right now. I always say, 'Look, save the difference every single month, at a minimum, because if you're going to a $4,000 a month payment from $2,000 a month, and you don't have money in your bank account, how is this going to work?'
I ask this question all day long. Seriously, this is my favorite question: 'How is this going to work?' And I really think that doing a budget is a really good idea. So we talk about that, like, do you have assets? And people are like, 'What's the amount I have to have?' Well, I mean, realistically, if you're doing a conventional three percent down, you need three percent, or you need someone who's going to gift it. So we need to know where that money is coming from. I don't want to pull your credit if I have no idea where that money is going to come from because I'm just doing a hard inquiry for nothing, right? Because I need that money.
Okay, now look, are there lenders that specialize in down payment assistance? Yes, there are. I am not one of them. It's not something that I specialize in. So if you need down payment assistance, you want to make sure that you're reaching out to a lender that specializes in it. And like, I wouldn't just do some big box online application. You need a specialist. Guys, these programs are really niche, and you need to make sure that who you're working with understands them. Okay, so if you're not doing down payment assistance, and you want to do three percent down, before you fill out an application, you should have that money, or know where it's coming from.
Savings Advice: "Here's a trick - if your future mortgage is way more than your rent, start saving that difference now. It's a reality check on what you can handle."
Smart Budgeting: "Before you come to me, get a grip on your budget. Use tools like mint.com. It's free and easy. Know what you can afford monthly, not just what you qualify for."
Okay, so credit, income, assets. Are you ready for the fourth? Are you mentally prepared to buy a house? Okay, and what I mean by that is, look, buying a house is incredibly exciting. It is, it's so much fun. I go to so... I'm not even buying right now, and I'm on Zillow, just so much dream buying, it's ridiculous. But it's fun. And the thing is, though, is that the fun can be great, and you can totally qualify for a mortgage, but we need to make sure you're going to be comfortable with the payment.
So it's really important, and a lot of people don't do this, but if you guys have a chance, I would strongly encourage it. Before you reach out to me, do a quick budget on mint.com. I love mint.com. I don't have a paid partnership with them or anything. That's mint.com, it's free budgeting, it's really easy. It breaks down your spending, and I want you guys to identify what payment you can comfortably make.
Okay, because then as a lender, I can go, 'Okay, this is where they're comfortable, this is where their debt-to-income is, this is what they can buy. Does this work?' And sometimes, guess what? What you're comfortable with, you can't buy what you want. So then we have to have the question of, 'Hey, look, I can get you $500 higher on that payment, but how do you feel about it?'
And if you already have that budget queued up, you can look at it and go, 'Okay, can I make that work, or can I not?' Whereas without a budget, or without planning for what you're comfortable with payment, you'll just be like, 'Oh yeah, what do I qualify for? Cool.'
Just because I can qualify you for it does not mean you can actually afford it. We don't look at your day-to-day spending. I'm not checking your Starbucks card, right? I look at your credit report. You know, with VA, we look at childcare costs. Conventional and FHA, we don't look at childcare costs. That can be as much as a mortgage, guys.
So, it's really on you to know what mortgage payment you are comfortable with, and then it's up to me to see if I can qualify you for that amount. Sometimes people are comfortable with a payment that I can't qualify them for. And you know, like, look, there's some common sense here. If you make $3,500 a month, and the mortgage is $3,000 a month, you don't qualify for that. Simple, right? But a lot of times, people are like, 'Well, but I can pay it.' And I'm like, 'But you only make this.' And they're like, 'Well, I'll figure it out.' Not the way lenders work. So really, really think about doing that budget.
The Reality of Affordability: "Just because you qualify for a mortgage doesn't mean you can live with it. Your daily Starbucks run? That adds up and isn't on your credit report."
Visualize Your Dream Home: "Sounds cheesy, but picture your perfect home. When do you see yourself moving in? What's the weather like? This visualization thing really works."
You know, the other thing I would suggest is to visualize when you see yourself in the house. What's the weather like? What does the front door look like? I know it sounds so crazy; I'm from California, but seriously, it is so effective. We have clients where we're like, 'When do you see yourself in the house?' and they're like, 'It's summer. There's a pool.' And you know, they end up in a house in summer with a pool. It's crazy. So, really visualize when you see yourself there.
Lease Considerations: "Check your lease terms. Know when it ends and what breaking it costs. Start getting qualified a few months before it's up to avoid being rushed."
Lastly, because I know I've gone a little long on this, check your lease. If you guys have a lease, see when your lease is up, and also see if there's a penalty to break it. Now, sometimes people are like, 'Well, my lease isn't up until March. When should I get qualified?' Well, if your lease isn't up until March, I would say get qualified in December, right? Because if you close in January, your first payment is in March. If you close in February, your first payment is in April. So, you really want to get qualified and start looking sooner than you would expect.
The reason is you need to be able to see how much inventory is on the market. You don't want to be in a two-week pressure cooker situation; that's how people just end up signing a lease extension. You want to give yourself time to understand the market. You want to make sure you're properly, fully underwritten and approved, and you need time for that. So, do I think if your lease is up in March or April that we should be qualifying you right now? No, not unless you might want to break your lease or you have some concerns.
Okay, so I hope this video has been helpful. These are the steps I would advise you to take if you want to get prepared to buy a house in 2023. And I do have a video on how to buy a house in 2023 coming up soon. Talk to you guys later. Have a great day.