Quickenomics: Uncertainty Won’t Stop Determined Home Buyers

You may ask yourself: How on earth could I ever afford a home in the current economy? Home prices are growing faster than salaries by a landslide. Higher mortgage rates make monthly payments expensive and unaffordable. Sprinkle in some geopolitical uncertainty, inflation, recession fears and an unprecedented labor market, and you have so many daunting hurdles that no one would blame you if you wanted to give up.

That feeling may be reinforced by the Fed’s announcement on March 19 that it’s keeping the federal funds rates as is. As explained in our first installment of Quickenomics, mortgage rates are affected indirectly by the federal funds rate.

And yet determined millennials are achieving their American dream of owning a first home. How are they doing it? What can you do? How can you cut yourself a piece of the dream? There is no denying that it’s more difficult now than when mortgage rates were below 4%, but it’s doable – if you’re determined.

Read on to learn what you can do to be ready to buy a home – even in the current housing market.

Key Takeaways:

Paying down your debts and saving money are two key steps you can take toward buying a home no matter the current state of the economy.
Learning about how to buy a home and get financing will help you prepare to act when you are ready.
Keep tabs on your credit score to make sure it’s on track to support your application for a mortgage when the time comes.

Pay Down Your Debts

Before you can buy a home, you need to qualify for a mortgage. To do so, you’ll need to figure out what debts you owe and pay them down as best you can. The most common – and by far most expensive – type of debt is credit card debt. With interest rates on outstanding balances reaching nearly 30% and with delinquencies inching up, it’s no wonder that credit cards are very lucrative for financial institutions.

If you feel you cannot get your head above water with your credit card debt, consider taking the following steps:

Always pay at least the minimum monthly payment on a credit card.
Consider a debt consolidation loan. This will help you lower the interest rates on your credit card debt and set a definitive payoff date, and help spread out the debt payments to a reasonable amount every month for a year or more.
Look into debt relief. Debt relief companies will negotiate with your creditors for you to create a plan to reduce or repay your debts. Also, some states have debt assistance programs that can help you with student loan debt, unpaid taxes or overdue child support payments.

What’s Your Goal?

Home Purchase

Home Refinance

Tap Into Equity

Build Up Your Savings

Once your debt is under control, the next question is: What’s in your piggy bank? It’s a simple question, but it’s also an uncomfortable one for most of us. That’s OK – we all must start somewhere, and now is the time. The end goal is to have enough for a down payment, which can be as low as 3% of the purchase price or even 1% under some lenders’ programs.

Here’s how you do it:

Get started. Consolidate the savings you have and begin tracking the total. What do you have in cash under your mattress? In your dresser? How much do you have in your checking account? In your 401(k)? How about your savings account? Do you even have a savings account?
Cut the fat and think in numbers. You like avocado toast every Sunday with your mocha Frappuccino? Ever think about what that costs over time? Ever consider buying a coffee machine to drink your coffee at home? Did you know that a $5 daily coffee from your local shop adds up to $300 per month – and a whopping $3,600 every year? Dining at restaurants, no matter how casual, can add up fast. While one lunch out with co-workers may cost $15 to $20, that much in groceries can feed you for an entire day or more! I get it, we need to enjoy life, but we also need to minimize our expenses when we’re saving to buy a home. So, find ways to be more calculated when spending money on food, and when you’re thinking about activities, look for the free or low-cost options.
Open a high-yield savings account. Some banks offer high-yield savings accounts, which pay you interest to hold your money in those accounts, while also keeping your money liquid in case you need it. Once you have a chunk of savings, open an account with one of those institutions and deposit as much as you can afford to put away. Remember, no number is too small or too large.
Build a budget and savings plan. Build a budget using a spreadsheet, a piece of paper, a napkin, a whiteboard or whatever else you use to plan your finances. How much do you make each month? How much do you spend? Where can you save? Alternatively, what do you need to do to reach your monthly savings goal? At your monthly savings goal, how long would it take to save enough for a down payment to buy a home in the neighborhood you’d like to live in? Is that a feasible timeline? If you’re unsure how to do this, download a budgeting app like Rocket Money to help you out. You can also download free budget files from the internet or buy one through marketplaces like Etsy.

Ready To Become A Homeowner?

Get matched with a lender that can help you find the right mortgage.

Learn How To Buy A Home

How much do you know or understand about mortgages? About how monthly mortgage payments are calculated and what they include? What else would you need to factor in? What other loans are available to help along the journey? What do you need to look for when inspecting a home? Can local or federal government help you achieve your goal?

Here’s how to learn more about how to buy a home:

Online research. We have plenty of resources in the Quicken Loans Learning Center to help you get more insight around different types of mortgages and how they work. We also have calculators so you can estimate your monthly payment based on the down payment you’re targeting. You also have the power of AI at your fingertips to find the answers you’re looking for.
Government resources. Look into government programs available to home buyers and find out if you qualify for any of them. If not, see what else the government offers to help you. First-time home buyer down payment assistance and VA assistance programs are the most common, but there are plenty more.
Local markets. Use home search websites to find some neighborhoods you’d like to live in. Look through the listings to identify what you can afford and what you like. There’s an abundance of information on each house, comparable houses sold, taxes, schools, walkability and much more to help you make an informed decision based on what is available and what it all costs. Even though you may not be ready just yet to purchase a home, it can help you decide what you are willing to compromise on, and what you are not. Further, it will help you target what you need for a down payment, and subsequently what you will need to borrow in the form of a mortgage.
Additional resources. There are resources out there to help you in your journey outside of just saving money. There is a credit card available with a program to help with your down payment. There are mortgage products that reward you just by paying your rent on time in the years leading up to your home purchase.

Take The First Step To Buying A Home

Find a lender that will work with your unique financial situation.

Bad Credit Score? Fix It!

A critical measurement of credibility and eligibility for a loan is your credit history. A poor credit score doesn’t have to be a given, however, or an unfortunate circumstance you must endure for the rest of your life. Here are ways to build or fix your credit:

First, stop the bleeding and start paying your debts on time. Start building that credible track record to show lenders you’ve turned the page.
Compile all your current debts to begin tracking what you owe and to whom. Make whatever payments you can in full, if possible, to get those debts off your books. If there are debts that are larger than what you can pay off now, contact the debt owner and confirm how much you owe. While there are no guarantees, some debts can be negotiated down without further damaging your credit score. Collection agencies and debtors prefer to collect something rather than nothing.
If you have a credit score that is less than ideal, there are firms that can help you rebuild your credit. Reach out and see what assistance they can offer.
Look for government resources to guide you through the steps to begin improving your credit.

The Bottom Line

While owning a home may seem like a distant dream, it’s still within reach for many of us. The right mindset, clear direction and planning, and a willingness to make lifestyle concessions for future gains will help you find your path to owning a home. Every dollar saved, every debt repaid and every piece of knowledge gained will bring you one step closer. The path to homeownership, albeit challenging, will reward you with stability, security and the incredible pride that comes with the ultimate prize.

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Ben Shapiro

Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.

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