What It Takes To Become A Young, Black Homeowner
June is National Homeownership Month in the United States. It’s meant to be a time when homeowners celebrate and share the value of owning a home. But for many people, this portion of the American dream seems so unattainable that its value is irrelevant.
As inflation continues to make prices soar amid a confusing housing market with pay rates remaining stagnant, many millennials and GenZers, especially those who are Black, can feel incredibly hopeless while saving money, building credit and navigating the real estate world. Especially when homeownership in the country still appears to be a white privilege, with a rate of 72.1 percent of white people being homeowners. According to Bankrate.com, Asian and Hispanic homeownership rates have had the highest climb in the past decade, but Black homeownership rates remain under 45 percent.
So not only are young people struggling with getting ready to buy, but some are also traditionally underprivileged in this area. Since knowledge is power, Blavity sat down with realtor Terrica “the Credit Score Queen” Matthews, who has assisted more than 250 families go from renters to homeowners just over the past four years, to learn about what it takes to become a homeowner.
Get help if your credit score is below 700
Matthews, who is licensed in Louisiana, has helped thousands of people legally and permanently repair their credit. She also recently had a landmark sales month of nearly one million dollars in real estate closings. So, she knows a thing or two about preparing yourself for a big purchase.
She said that understanding your credit is essential to getting ready to buy a home and that you should consider working with a legitimate credit counselor anytime your score is below 700. And while watching someone build up their score may make you want to help them, she cautions you to mind your own credit.
“The biggest mistake people make with their credit is co-signing for those who already have poor credit,” Matthews told Blavity. “Also, maxing out their credit card balances.”
Once you’re on the right track to raising your score, the key is monitoring it.
Matthews suggests using Credit Sesame as it will paint the best picture of what your FICO score really looks like.
Student loan debt won’t necessarily stop you from owning a home
The student loan crisis in the United States has a lot of potential buyers stuck in so much debt that taking on another loan can feel like an impossible feat. There is nearly $2 trillion of student loan debt spread among 44 million Americans with high-interest rates. Experts say this number could easily reach $3 trillion in just over a decade. But while so many people struggle with this sort of debt, having student loans doesn’t exactly rule you out of the home buying market.
“Student loans are calculated into your debt-to-income ratio,” Matthews said. “I wouldn’t say that it would automatically stop one from qualifying, but it may impact the amount of home loan you may qualify for.”
So, the idea is that if you can qualify for enough to buy a home, you should consider foregoing your dream home for your first purchase and get something that can help you build equity or passive income as you work toward a bigger purchase at a later time.
Saving money means going without
The social media trope is that millennials just need to stop eating avocado toast or cut subscription-based television if they want to save money, but the truth is, wages are low and prices are high. Unfortunately, the best way to save money is to cut some luxury, just for a little while.
Matthews also suggests side hustling or another avenue of passive income.
“An easy way to save for a down payment and closing costs is to increase your income through a side hustle and or to cut out unnecessary spending,” she said.
The good news is that you don’t need as much money to buy a home as you may think.
“There are various down payment assistance programs but those usually come with a higher interest rate,” Matthews said. “If you are seeking FHA financing, which is a very popular program, you will need a down payment of 3.5 percent and closing costs of 2 to 5 percent.”
She reiterated that closing costs and down payments are two different fees. However, in some states like Louisiana, it can be customary for the seller to pay the buyer’s closing costs. Other states have customs like splitting the taxes with buyers.
Homeownership is not unattainable, but it’s also not an easy road
It can feel impossible, but if homeownership is something you truly want, you can make it happen.
“I strongly believe that where there is a will, there is a way,” Matthews said. “Like any other goal, if you have a positive mindset and tenacity combined with extreme execution, you will accomplish your homeownership goal.”
The reason why real estate experts emphasize starting small, if you need to, is that you can start to enjoy the benefits of homeownership at any stop.
“The most obvious benefit is from the financial realm,” Matthews said. “Homeownership allows you to build equity and wealth. As you pay off your mortgage each month, you will be building equity in your home. Also, as your property increases in value, so does your equity, which allows you to sell and reap a lucrative return on your investment.”
But when you make it, don’t forget where you came from. Some people become homeowners and immediately take to rent-shaming.
“If you have the ability to keep a roof over your head, that in itself is a blessing,” Matthews said. “However, I do see rent-shaming often and it is very disheartening. I do not believe that there is anything wrong with renting as long as it is not a long-term goal. The reason I say this is because through renting it is impossible to build generational wealth and equity. Your family can’t inherit or financially benefit from your apartment lease.”
Checking off your list
Once you’ve gotten your credit in order, figured out your savings plan, understand the market and are ready to shop, you should begin by interviewing three realtors.
“Make them work for your business,” Matthews said.
Once you hire a realtor, you will have a home-buying consultation. This session helps the realtor understand your needs, wants and what you think your budget will be. Following that, you will secure a lender and get pre-approved for a mortgage loan. Then, it’s time to shop with your realtor.
Keep in mind that a licensed realtor is vital when you are buying, selling and investing in real estate.
“We advocate for your best interest and ensure that everyone involved is operating in compliance with real estate law, rules and regulations,” Matthews said.
While it can seem like a terrifying process, understanding the tools for success and having the right team on your side can make it much easier. Remember that you don’t have to buy your dream home right away and baby steps are just fine as long as you are working toward something.
You can keep up with Matthews on Instagram at @terricaismyrealtor for more financial facts and real estate musings.