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Update: In the time since this story was published Thomas and her fiancée switched builders after having concerns with the quality of the first home. You can about the new lessons they learned from this story about homebuyers’ remorse.
After years of getting stuck with one rent increase after another, GiGi Thomas was ready to get out of what she calls the “rent race.”
Now, Thomas, 34, and her fiancée are weeks away from living in a brand new home of their own. “I felt like I was throwing my money away in an apartment,” she says. Armed with a predictable housing payment, Thomas feels she has a more secure future because she’s paying for something her family will own.
Thomas and her fiancée had to overcome a lot to get to where they are. They spent four months losing bidding wars. “There are people offering $30,000 and $50,000 more than the list price,” she says. “We just couldn’t compete with that.” Eventually, they changed tactics and put a deposit down on a new build in the Dallas, Texas, area. The home should be ready for them by the end of this year.
Navigating a hot housing market wasn’t the only challenge. Thomas has a six-figure income but a low credit score. She’s also an independent contractor with a 1099 income, making it even more tricky to qualify for a loan. And as a Black homebuyer, the concern that discrimination could negatively impact her chances of becoming a homeowner was hanging over her head. “I definitely had to overcome that fear,” she says.
The couple’s first-time homebuyer journey wasn’t quick or easy, but Thomas and her fiancée learned a lot along the way. Here’s the advice she has for anyone on the path to becoming a homeowner.
A First-Time Homebuyer Perspective: 5 Tips for Navigating Today’s Seller’s Market
This real estate market is difficult and stressful for buyers. “Every house that we put an offer on we were really invested in, you know, and so it hurt every time we got denied,” Thomas says.
There is no “easy” button for buying a home, but with the right perspective, strategies, and advice, you can increase your chances of success.
1. Other People’s Experiences May Not Apply to You
With so many factors that go into a homebuying experience, each journey is vastly different.
The homebuying stories you hear or read about online should be approached with a hint of skepticism, Thomas cautions. Not everyone tells the whole truth, she says: “People are ashamed of their credit scores, sometimes even their income.” When someone shares a positive or negative experience, they could be withholding or forgetting key bits of information.
The housing laws and regulations vary from state to state, and one municipality to the next. Two houses may be 15 miles apart, but the property taxes are different in those areas, and those taxes are going to play a huge factor in your monthly payment, Thomas says.
Beyond the home you’re looking to buy, your personal situation heavily influences what type of mortgage or home makes sense for you. Your credit score and income are important to a mortgage lender, but those aren’t the only factors considered. Someone may say their mortgage application was denied because of a 680 credit score, but not mention student loan debt, income, a previous bankruptcy, or what type of loan they applied for.
Thomas was preapproved a home loan with a 630 credit score. What’s important to know about her situation is that her fiancée had a credit score of 700+, and they both have high incomes in the low six-figures. They also were preapproved for an FHA loan, a loan backed by the Federal Housing Administration, which has lower credit score requirements than a conventional loan.
2. Focus on Spending Habits That Build Your Savings and Credit Score
The higher your credit score, and the more savings you have, the easier it is to qualify for a home loan with the lowest possible mortgage interest rate. Thomas and her fiancée started saving for a house and emergency fund roughly a year before they started looking for a home. Having extra cash on hand gave them more flexibility during the homebuying process.
Thomas started out with a credit score around 585, and her lender suggested that she pay down a credit card balance using her savings to boost her credit utilization ratio. She was using 50% of the available credit, but when she paid it down to 10%, her credit score went from roughly 585 to 630 in about two months, she says.
It’s important to continue managing your spending habits and building your savings and credit score even after you’re preapproved for a mortgage. “[Your lender is] going to educate you on things you can do to help increase your [credit] score because your preapproval is just a preapproval,” she says. “It’s not for final approval, you can still get denied.”
3. Get Advice From Real Estate Professionals, Not Your Friends
Working with experienced industry professionals is one of the best ways to get advice tailored to your individual circumstances. “I would tell everybody to just seek professional advice,” Thomas says. Your family and friends may be homeowners, but that doesn’t necessarily make them experts. “If you listen to your parents, they bought a house 20 or 30 years ago. Things have changed from 20-30 years ago.”
Once you’ve started the homebuying process, you want to talk with your real estate agent or lender before making any big decisions. Thomas improved her credit score by paying down debt, because that was what her lender recommended doing. Don’t make any moves like this until you get your mortgage preapproval back and you speak to a professional, Thomas says. Your lender can help you determine what course of action is best for you.
Talk to a handful of licensed real estate agents and mortgage lenders. Look for someone who has knowledge and experience in the area you want to live and with the type of mortgage that’s best for you. To find someone you can trust, ask around your community and talk with the other professionals you’re working with. Thomas and her fiancée worked with a real estate agent they knew from church.
4. Confront Your Fears and Apply
Becoming a homeowner is a big commitment and it can be intimidating. You’ll have to take care of the maintenance and upkeep. But for Thomas, the benefits outweigh the negatives.
Don’t let fears of the worst-case scenario, or someone else’s negative experience, stop you from creating your own story, she says. “Your entire life [you hear] about redlining, the mortgage industry trying to keep Black people out … it messes with your head,” Thomas says. “You get scared. You don’t want to apply.”
But after going through the homebuying process, she realized it wasn’t as impossible as it originally felt. “We think we’re not worthy, or we think we won’t get approved because of historical evidence,” Thomas says. She believes you need to give it an attempt and apply, or you’ll never know for sure.
If now is the right time for you to become a homeowner, learn about the process and how to advocate for yourself. At the very least, you can get an idea of your options by going through the mortgage preapproval process to see what type of home loan you qualify for, or by talking to a real estate agent about your local housing market.
5. Come Up With a Homebuying Budget and Stick to It
When you’re house shopping it’s important to stay within your homebuying budget. “Don’t try to keep up with the Joneses. People will look at their friends’ homes, or celebrity homes and they’re like, oh, I got to have this and I got to have that,” Thomas says. “Really, you just need to get out of the apartment you’re in.” You may not be able to find everything you want in a home, but some changes or additions you may be able to easily make later on.
If you’re buying a home with someone else, you’ll also want to consider your partner’s needs and wants in a home when determining your budget. Thomas says it was tough working out a home buying budget with her fiancée. Thomas considers herself the frugal one, but ended up settling on a maximum monthly payment of $3,000.
The couple will pay $318,000 for their new home and estimate their monthly payment will be $2,500, at most. “I really don’t want a $2,500 a month mortgage payment, but here we are. You gotta compromise somewhere,” Thomas says. This monthly payment estimate includes fairly high property taxes, the mortgage principal and interest, homeowners insurance, and mortgage insurance.