Buying a home is an exciting step in securing your financial future. From budgeting for your down payment to ensuring that you have a healthy FICO score, there are a few financial steps to take to prepare for the home buying process. Ultimately, purchasing a home is the most common way to build up your net worth and maintain financial security.
What is your Net Worth?
Your net worth is the amount of money and assets you have as compared to the amount of debt that you have. So if you have $10,000 in the bank, a car worth $15,000, and a $5000 auto loan, then your net worth is $20,000.
$10,000 + $15,000 – $5,000 = $20,000
Because a home is most often the largest asset that you will own, it can have a significant impact on your net worth. When compared to renting, homeownership puts you in a much better position to increase your net worth. If you are a renter, then each month you are paying money to a landlord. However, if you are a homeowner, each month a portion of your mortgage payment goes toward the equity in your home.
So let’s say you own a home worth $300,000 and you owe $250,000 to the mortgage company. Each month when you pay off your debt, you are adding to the amount of equity you own in the house. Unlike renting, your monthly payment partially goes toward ownership in a large residential asset. More importantly, a house is an asset that is likely to gain value over time. So if you buy a home at $300,000, it could be worth much more by the time you go to sell.
In some cases it can be difficult to meet the requirements needed to secure a mortgage and purchase a home. In order to qualify for a mortgage, any people believe that they need a large down payment. However, there are many mortgage options available for smaller down payments. On the other hand if you are not able to qualify for a mortgage due to a bankruptcy or lack of income documentation, you may still have options.
What is a Non-QM Home Loan?
A non-QM mortgage, also known as a “non qualified mortgage,’ is a home loan that does not require as much documentation as a conventional or government loan. In some cases, you can use these mortgages to purchase a home even if you have a lower FICO score or if you have had an unfortunate financial event, like a bankruptcy. For example: A&D Mortgage offers No-Income Mortgage Solutions to allow home buyers to secure a home without as much income documentation as a normal loan.
These can be very helpful for buyers who are self-employed, and for buyers who are interested in investing in property. As long as you can provide a business P&L sheet, you may be able to qualify for a Non-QM mortgage. Additionally, non-QM mortgage can often be provided based on stated income.
Traditional qualifying mortgages require a lot of documentation—including extensive documentation around your income. A non-QM loan can be a great alternative if you want to buy.a home but cannot provide that level of documentation.
In many cases, a non-QM mortgage opens home buying options to people who would not be able to qualify under different types of loans. In turn, those people are able to stop renting and become homeowners—which can increase their net worth over time.