Unit 1: Do You Want to Buy a Home?

Lesson 2: Getting money to buy a home

Sometimes, people don’t follow through with their dream of buying a home because they think that no lender will ever give them a loan. “I don’t make enough money,” they tell themselves, or “A few years ago I got in trouble with my credit card, so a bank would consider me a high risk.”

There is an old saying that goes “Where there’s a will, there’s a way.” If you really want a home and really feel responsible enough to maintain one, the saying may turn out to be true for you. Many lenders are coming up with new ways to help people get loans. After all, homeownership is good not only for you, but also for the country—the more people who own homes, the more stable we all are.

Even if you aren’t able to get a loan right away, it can help a lot to know now what will be required. Big undertakings—like buying a house—always look harder when you don’t know the rules. Once you understand the rules and the steps you must take, buying a home may seem much less frightening and much more within your reach.

In the next three lessons you will learn about the things you need to know and do to get a home loan.

Most people cannot pay for a house all at once. They usually put down a certain amount of money called a down payment. Then, they take out a loan, called a mortgage loan, to pay for the rest. They make payments each month to a mortgage lender. It may take as long as 30 years to pay off the loan and the interest (the money a lender charges you for borrowing from them). There are many kinds of mortgage lenders, including banks, credit unions, savings and loan associations, and mortgage companies, that specialize in home loans.

Before a lender will give you a loan, they will look at your job history and personal finances (the money you earn, the money you owe, and the money you have saved) to decide if you can afford to make monthly payments on the loan. Below are questions a lender will ask. Think about how you would answer each one.

How steady is your job history?
The first thing a lender will look at is your job history. A lender likes to see that you have worked continuously in the same field or line of work for more than two years and that you have a steady income. It does not matter if you have had one job or a couple of different jobs, so long as your job history shows the lender you have enough income to repay your mortgage loan.

Do you pay your bills on time each month?
When you apply for a loan, you will be asked to list all your debts (such as car loans and money you owe on credit cards), the amount of your monthly payments, and the number
of months you have left to pay. The lender will order a credit report to check up on the information you give.

Do you have a credit history?
Most lenders would prefer that you have a good credit history. Your credit history shows your record of borrowing money and paying it back on time. If you have never had credit cards or taken out a loan, you may put together your own credit history that shows you pay your rent, telephone, utilities, and other bills on time. This is called a nontraditional credit history.

Do you have money saved for a down payment?
Before you buy a house you will need to have proof that you have money saved for a down payment and for a number of costs related to buying the house, called closing costs. Usually you must make a down payment that equals at least 5 percent of the price of the house. Some special loan programs will allow you to put 3 percent down. There are even a few loans, such as Veterans Affairs (VA) loans for veterans, that require 0 percent down.

However, if you do not have money in savings for a down payment, the lender may ask you
to reconsider whether or not you are ready to buy a house at this time. Later, in Unit 3, you’ll learn about some special programs that allow first-time home buyers to borrow part of the money for their down payment.

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