We get lots of "shoppers" looking to buy homes that simply cannot afford to do so. It often gets confusing for the agent to try to help them understand these issues, but I look at it as part of my job. Educating the buyer to understand what they can or cannot afford. This can be done through our experience with mortgage companies and how they will assess their finances, but it can also be done in an even more conservative manner. That is because even if you can afford to purchase a home, it is not always a smart financial decision.
The first issue that usually comes up is the down payment. I don't understand why a buyer would think they should get a loan if they don't have any monies to put down as a deposit. Besides not giving an protection to the lender (because the buyer has no equity in the home), it should also give the lender alarm that the buyer will not be able to save money in the future. Assuming that the mortgage will be a higher payment that they were previously paying in rent, the buyer would be underwater as of the first payment (assuming the same spending habits outside of real estate).
Aside from down payment, we also see a lot of buyers that are self employed. What is most troubling about self employed relates to the mortgage companies and their reluctance to lend in such instances. It will take showing past tax returns and proof that you have made money in past years for them to get the comfort they need to lend you monies. But if taking an even more conservative approach, the buyer needs to think about what would happen if their business starts going down the toilet. The stress of not making enough money is bad enough, but to compound it with the threat of losing your home, this becomes almost unbearable. The last, and equally important part of self employment, relates to those who do not report all of their income. Remember, if you are not claiming all of your income, the lender will only be looking at your tax returns. You can cheat the taxman if you want, but you won't be able to borrow as much money when you need it because of this. So my advice, be honest and straightforward on your tax returns, and it can come back to you with the ability to borrow more money.
My advice is this: If you don't have any money saved, stop thinking about buying a home in the present. Start thinking about the future. Learn to curb your spending. Lease a less expensive place to help save funds. Set a goal and set money aside to meet that goal. Open a new savings account just for this reason, and never touch it. Just put the money in and don't take it out. You will then be on the right track towards home ownership in the coming years.
