The American dream is the belief that all members of American society should have the freedom to succeed and prosper, regardless of their heritage or class status.
The notion of prosperity and success is represented in many ways and one of the most important of these is homeownership.
However, there is a huge gap between the ideal and reality. For example, while homeownership may be ideal, there are still numerous financial challenges that must be overcome before that ideal can become a reality.
The financial challenges that face home buyers
Although homeownership is seen by many Americans as a birthright, the reality is that there are significant financial challenges in a homeowner’s life. Here are some of them:
The down payment. A down payment is a payment made in the initial stages of a purchase, comprising a percentage of the overall purchase price. The down payment is often the first obstacle faced by new buyers, and to afford it, the vast majority of people have to take out a loan.
The mortgage. Housing loans come in various forms with the most common one being a mortgage. There are many different types of mortgage loans and it is important that the borrower understands the exact terms and conditions of the mortgage.
The most popular type of mortgage is the Federal Housing Administration (FHA) loan. The FHA loan is designed specifically for low to moderate-income owners and as such normally requires a lower down payment and a lower credit score.
Housing loans may also be acquired from mortgage brokers, commercial mortgage bankers, commercial banks, savings and loans associations (S&L) credit unions, and private individuals.
The FICO score
A FICO score is a Credit Score developed by the Fair Isaac Corporation and it gives a numeric assessment (a score) that denotes your capacity to pay back the loan, or put another way, your creditworthiness.
Lenders in the housing market will nearly always use the FICO Score system to assess credit risk and determine if an individual qualifies for a loan. FICO Scores range from 300 to 850 and take into account factors such as payment history, the current level of indebtedness, and overall credit history.
The two types of lender ratio are the Front End Ratio and the Back End Ratio.
The Front End Ratio is a debt to income ratio and the calculation includes your PITI (Principle Interest, plus Taxes plus Insurance) as a % of your monthly gross income.
The back-end ratio defines the percentage of a person’s gross monthly income that will be needed to pay back a loan. The back-end ratio is calculated by adding together your PITI and all monthly debt payments.
Finding the right building contractor
Arguably the most important decision facing the owner builder is which building contractor to use. Here are some tips on how to choose the builder that is best for you.
Make a List of Possible Builders. The best way to compile this list is to contact your local home builders association and ask them for a list of current home builders. You can also search in the real estate section of your local newspaper, conduct an internet search or ask your local real estate agent, friends, and relatives, for recommendations.
Another way of deciding which builder is best suited is to visit a builder’s subdivision or buildings. This will give you the opportunity of viewing a builder’s work first hand and to find out what the owners of those houses think of the building standards.
Do not be intimidated by the size. Many new homeowners/builders are intimidated by the size of the larger construction companies and believe that their home building is too small a job. Thinking this way is actually a mistake and it is important to remember that most construction firms fall under the general contractor category which means they will do big or small building projects. Indeed, as many experienced general contractors proudly state on their website, “no project is too big or too small”.
Be on the lookout for quality and value. When deciding which builder to use always shop around for the best value. A good idea is to attend home shows and open houses sponsored by builders. This will give you an idea of the quality of a builder’s work, it will give you design ideas and give you an idea of a builder’s pricing.