What should people know about the homebuying process?
AL DÍA hosted a virtual roundtable discussion on Oct. 27 that pinpointed managing costs, funding programs and other elements of homebuying.
MORE IN THIS SECTION
When the topic of homeownership is brought up, there is often a key component that commonly isn’t.
While homeownership can pay huge dividends in providing stability for individuals and families, beyond the surface level, it can also build wealth and equity.
However, there has long been a big disparity in homeownership for communities of color, especially in Black and Latino communities.
What are the steps that can be taken to help close that disparity? How can individuals in communities of color find ways to afford down payments? What are some ways to budgets?
Those are some of the questions asked and answered during the AL DÍA Roundtable on Oct. 27, titled, “Achieving the Dream: How to Manage Costs, Funding Programs and Your Money When Buying a Home.”
The Values of Homeownership
HACE is one of Philadelphia's most prevalent community development corporations serving low-income neighborhoods in North Philadelphia.
“We see homeownership as an opportunity to be able to create wealth and stability in low-income families,” said María González, executive director of HACE.
She added that traditionally, homeownership has been used as a way to build equity, to move up the economic ladder, and as a crutch to combat situations, such as gentrification.
From these factors, it is evident the residual effects of not being able to purchase a home.
“So, there’s an urgency for us to be able to really jumpstart people from our community that want to stay in the neighborhood to buy a home so that they’re able to benefit from new investments and other investments that are being planned around us,” said González.
“For us, homeownership is really equal to housing stability, consistency in being able to have a steady-known housing expense.. And also long-term is to be able to build that wealth, so that you can benefit from it and hopefully benefit your family,” she continued.
Facing and Overcoming the Challenges
While the benefits of owning a home can’t be overstated, various challenges persist toward that endeavor.
“The challenge is credit,” said González.
For individuals with low-income, budgeting is of the utmost importance. Not being able to budget and making payments on time can negatively impact your credit.
Savings stand as another challenge.
“We need to have substantial savings in order to be able to make down payment and to pay closing costs, as well,” González said.
However, another key challenge that was found through an HACE study was that people who grew up in a household of a renter, as opposed to a homeowner, are less likely to buy a home themselves.
For individuals who don’t have that intergenerational knowledge of homebuying and homeownership, there are many assistance programs available to help provide information.
But how can potential homebuyers find these programs?
“Research, research, research,” said Ron Dutton, senior vice president and director of community reinvestment at WSFS Bank.
Dutton highlights organizations like the Pennsylvania Housing Finance Agency for providing counseling services for first-time homebuyers.
“Particularly on everything from budgeting to the credit process to the mortgage process, which I think is really key,” he said.
He also highlighted websites like bankrate.com, where you can research interest rates.
“One of the key things is understanding what the market rates are so that you can get a rate that’s very competitive in accordance with your credit score,” said Dutton.
Other websites like nerdwallet.com, and government websites like the US Department of Housing and Urban Development (hud.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov) are other great resources for first-time homebuyers.
Loan Services, and Getting a Mortgage
Once that is taken care of, the next step is looking for loan opportunities.
Dutton noted that the first thing to do is get pre-approved for a loan.
Doing so makes the homebuying process easier, as you will know what your parameters are and what you can afford as it pertains to a mortgage.
Nick Velecico, community reinvestment loan officer at WSFS Bank, noted three factors that can impact your ability to get a mortgage.
“One of the big things is undisclosed debt,” he said.
Having debt that isn’t addressed can impact your ability to get a loan, as it may put your ability to make on-time payments into question by loan officers.
“Another is you change jobs or you change positions,” said Velecico.
Switching to a new job or position may influence your salary and income, which is a factor in obtaining a loan.
Velecico noted that the third is purchasing something or having your credit run while you have a loan in processing.
“Every time someone goes into your credit, it's called an inquiry, and that's affecting your credit score. We rerun your credit and check your employment two days before closing to make sure there's no material changes,” he said. “When we run it, it's called a softball, so it's not going to affect your score. But they'll tell us if you took out new debt, and if you took out new debt, now we got to rerun the credit.”
What Does the Housing Market Look Like?
Darrell Dorsey, owner of The Dorsey Investment Group, has noticed an alarming home buying trend for those with low-income in Philadelphia.
“I’m finding it’s just difficult for them to buy… because of a scarcity issue,” he said.
In many areas, the property value has increased, and those individuals are unable to afford to stay. In many instances, they wind up moving to other neighborhoods.
To this end, Dorsey stressed the importance of finding and utilizing programs that provide grant opportunities.
What he has often done in the past is help his clients find creative financial solutions to help them buy a home.
The pandemic has caused an increase in the housing market.
To this end, González noted that she has seen adjustment rate mortgages make a comeback.
“Where they have that special low interest rate for a certain period of time and then it escalates up to whatever the bank or the lender is offering,” she said.
However, she clarified that it’s something to be careful with because it is important to do so only when it is affordable in both the immediate and the long-term.
“That is why I like to say to people, ‘if you’re really serious about buying a home or even exploring the possibility of buying a home in the near future, you should start at a housing counseling organization and meet with a housing counselor,’” added González.
Additional Tips for First-Time Homebuyers
González said that local counseling agencies are beneficial in helping potential homebuyers get their credit report and develop plans for next steps.
“Find out what’s available in the community that you want to buy,” said Velecico. “Find our what free money is available.”
This especially pertains to those with low-to-moderate income.
“Talk to the lender and find out what specific programs that lender has… that’s going to save you the most money, you’re going to have the least down payment,” he continued. “It’s going to be the best of both worlds.”
Dutton doubled down on his stance about the importance of research.
“Research is key,” he said. “And working with great organizations will provide great counseling for individuals looking to buy a home.”
Dorsey added, “Work with these nonprofits. Definitely stay on top of your credit.”