Being able to purchase residential property and finally have a home of your own is a dream come true for many people. But no matter how excited you are about the prospect of buying a house, or how ready you think you are, certain financial factors and money habits can keep you from getting to that point. At the very least, they can cause delays — sometimes adding months or even years to your homebuying timeline.
GOBankingRates recently spoke with Erin Hybart, a licensed real estate agent in Louisiana; Nicole Beauchamp, a licensed associate real estate broker at Engel & Volkers; and Scott Bergmann, a realtor with Realty ONE Group Sterling, about the top financial factors preventing people from buying a home.
Lifestyle Inflation and the Debt Trap
“Two hurdles to homeownership that keep people from owning a home are ‘Lifestyle Inflation’ and the ‘Debt Trap,’” Hybart said.
Lifestyle inflation is essentially when your pay increases, so you start spending more money. Or, as Hybart put it, “You get a pay bump, and it’s tempting to upgrade your car or take a vacation instead of saving it for a financial goal.”
The debt trap is another major complication that can delay homeownership.
“Then, there’s the debt trap of borrowing for today for instant gratification at the expense of your future,” Hybart said. “The world loves to market the zero interest and small monthly payments on items that are not necessities. Those small monthly payments all add up and increase the debt you owe.”
The more debt you have, the harder it is to find a lender willing to work with you and give you the best rates on your mortgage. Plus, having more debt means you have less money for a down payment or other upfront costs when getting a house.
Lack of Communication
If you’re buying a house with a partner, communication is essential to ensure you’re both on the same page and can realistically afford the purchase. But many people skip this step or don’t have solid communication skills, thus delaying their homebuying journey.
“Communication will be key for any couple when discussing finances,” Hybart said. “One of the best ways to make easier financial decisions is to ask yourself if this purchase aligns with your long-term goals before you splurge on the newest smartphone or a luxury vacation. Instituting a ‘wait-and-reflect’ period for large purchases can add invaluable perspective and curb the ever-so-easy impulse spending.”
However long you choose to wait, it should be based on what works best for both parties. This could be a week, or it could be a year. Whatever the case, it’s important to be clear and realistic about your expectations and goals.
Poor Credit
A person’s credit score and history go a long way in determining whether they can qualify for a mortgage loan. The better your credit score, the better your approval odds and interest rates. Having good credit could also help you get approved for a larger loan amount — though it’s still important to make sure you can realistically afford whatever loan you take out.
Unfortunately, many people neglect their credit score. So, when they go to apply for a loan, they don’t qualify or they qualify for a smaller loan amount than they need.
“My number one tip is to check your credit score often as it’s like taking your financial pulse,” Bergmann said. “It’s the best way to keep constant tabs on the health of your finances.”
Lack of Financial Preparedness
Along with credit, your income and savings are also vitally important when determining whether you’re ready to get a house — or if you’re bound to experience delays.
“One of the major factors that keeps people from owning a home is not feeling (and not being) financially ready to take on home ownership,” Beauchamp said. “In some cases, this means that they do not have good credit, or do not have sufficient [savings] for down payments and closing costs.”
If you don’t have enough money to manage the monthly mortgage payments, or if you don’t have at least the minimum down payment saved up, you might not be able to get a house when you want to. This doesn’t mean it’s impossible, though.
“At times, [poor credit and insufficient savings] keeps people in the cycle of renting,” Beauchamp said. “However, sometimes buyers can make use of creative ways of financing [their] purchase, or can look at ways to improve their credit, or [they can] borrow (at a higher cost) because of their credit profile.”
Accounts in Collections
Having accounts in collections can seriously impact your credit score and make it harder to qualify for a loan.
“First and foremost, one of the worst financial habits is not closing or resolving any…
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