Becoming a homeowner is a part of the American dream, but most of us have no idea where to start when looking to buy a home. It's a common belief that to become a homeowner, you need a high income, perfect credit, and a lot of savings, but this isn't true.

You can qualify for a home and homeowners insurance even with bad credit or emptying all of your savings. You can take multiple routes to become a homeowner. All you need to do is find what the best home buying option is for you.  

The Home Buying Process

You can't join a race when you don't know how to get to the starting line. Don't get deterred by not understanding the process because it's much simpler than you think. Here is a general breakdown of what to expect during the home buying process:

  • Know your information - Before applying, know your credit score, annual income, and average costs of homeownership in your desired area.
  • Determine your price range - Be realistic about what you can afford. Just because you are receiving a loan doesn't mean you'll be in a $500,000 house.
  • Get preapproved for a mortgage - A pre-approval will help narrow your search by where you can look and in what price range you'll eventually buy.
  • Get a home inspection - Make sure the home you're about to invest in won't have any living or maintenance surprises, and if so, they are ones you can afford.
  • Select a loan program - How you plan to pay your mortgage after moving in is just as important. In most cases, once you sign the papers, you agree to a 15-30 year agreement.
  • Get an appraisal - Be sure you are negotiating your end deal with a fair market value. An appraisal will give you an unbiased opinion of the home's current property value.
  • Coordinate the paperwork - Provide anything your realtor needs to make closing easier.
  • Close and get the keys - Once you close on the house, the property is yours and you can start decorating.

Of course, these steps require preparation, but there's much more support to get you to closing than you think.

Getting Approved for a Home

Applying for a home loan is one of the biggest loans you'll apply for, which can be intimidating. You may think that because of outstanding student debt or a low credit score, bankers and agents want you nowhere near their market, but there are programs designed to help.

A few of the most widely used loan programs for non-income property home buyers include: 

  • FHA loan - Standing for the Federal Housing Association, FHA loans are great for first-time homebuyers who wish to have a small down payment. Your debt-to-income ratio must be under 43%, and the home must be used as the buyer's primary residence.

Credit score needed: 580

Debt-to-income ratio: < 43%

Average down payment: 3.5% up to 10% for those with bad credit

  • VA loan - The U.S. Department of Veterans Affairs offers homeownership incentives for veterans and active-duty service members. The best thing about qualifying for a VA loan is not needing to worry about making a down payment. VA mortgage loan interest rates are also much lower than other loan types.

Credit score needed: 620

Debt-to-income ratio: < 41%

Average down payment: Zero

  • USDA loan - Given from the U.S. Department of Agriculture, USDA loans are for homebuyers of rural areas. The most significant restriction here is location, but if city-life isn't for you, this is a great option.

Credit score needed: 640

Debt-to-income ratio: < 41%

Average down payment: Zero

  • HUD Good Neighbor Next Door loan - HUD is an FHA program that is offered by the U.S. Department of Housing and Urban Development. To be eligible for the Good Neighbor Next Door loan, you must have a career in a communal service industry like teaching, law enforcement, medical care, or firefighting.

These loans are not for homeowners seeking income properties, and buyers must be living onsite for at least the first 36 months of ownership.

Credit score needed: 500

Debt-to-income ratio: > 57 maximum

Average down payment: 3.5%

These programs make homeownership more obtainable and even help guide prospective buyers with homeownership responsibilities. With most loans requiring 3.5% as down payment, the recent $1,400 stimulus checks would be half of the amount needed for a home valued at $80,000.

It is crucial to know your budget for getting into the home and the annual amount for maintaining ownership before buying. What is misconceived about home loans is that you have to check every box when there is give and take for the standard qualifications. 

Not all hopes are lost if one of your desired loan's standards aren't met, but the property value you get approved for will likely be lower. If you don't get approved or don't get approved for your desired amount, it could be that now is not the best time to apply.

What to Know Before Buying a Home

Before you start searching the web for homes in your area, you need to ask yourself if you're ready for homeownership. 

Maintaining a home entails many responsibilities such as lawn care, changing HVAC air filters, lawn care, and paying property taxes. Even after getting approved for a loan, homeowners association dues, taxes, and maintenance costs are expenses that will affect your ability to repay the loan.

Plan on gathering as much information you can about your desired loan option and the property you would most prefer to buy. Due to COVID-19, processes might move a little slower than average, so be patient.

Once you get pre-approved for a loan, you typically will be given between 90-180 days, but not finding a home in that time won't necessarily take away your ability to qualify. Bankers and real estate agents will tell you that the most challenging part of the buying process is finding the right home.

The pandemic has made every aspect of life harder, but becoming a homeowner provides much-needed security at a time like this. Building your credit and saving account will be worth the wait once you get the keys and open the doors to your new life.

Required Steps (+Expert Advice) for Buying a New Home
(Photo : Danielle Beck-Hunter)

Danielle Beck-Hunter writes and researches for the insurance comparison site, USInsuranceAgents.com. Danielle is a young homeowner who is passionate about simplifying insurance and personal finance decisions for the millennial and Gen Z generations.