How Financial Coaching Makes It Easier to Get Mortgage-Ready

The path to homeownership can seem intimidating without a guide. Do you know you want to buy a home but aren't sure if you're ready? Perhaps you're questioning whether homeownership is right (or even possible) for you.

Pa Lor, Homeowner Development Manager with Twin Cities Habitat for Humanity and a homeowner herself, understands the questions, challenges, and fears new homebuyers may have before beginning the mortgage application process. She says financial coaching helps you prepare for the homebuying process. You can learn everything from how to qualify for financing to the steps to purchase a home and beyond.

"Am I ready to buy a house?" "Can I afford it?" "What happens if… ?"

It's normal to have a lot of questions before buying your first home. It can be a complicated process that takes experience to navigate. And it’s even more challenging if you’re the first in your family to purchase a home. Pa says that when she was getting ready to buy a home with her family, she asked herself a lot of questions:

• Can we afford a home?
• How do I even start the process of buying a house?
• What do I need to get mortgage-ready?
• Are we able to make the monthly payment?
• Will my house be foreclosed on if I can't keep up with payments?
• What happens if I lose my job?

Nobody starts their homebuying journey completely ready. Everyone has a different starting point—based on their debt, credit history, employment, and knowledge of the homebuying process. Financial coaching is specifically designed to get you ready to answer questions like those every step of the way.

The purpose of financial coaching for homeownership

First off, a financial coach is not a mortgage loan officer. A financial coach can't approve or deny you a home loan. Instead, they can help you understand your financial situation by asking questions, conducting analyses, and identifying opportunities to improve your financial situation before you apply for a mortgage. Financial coaching helps you to build a framework and knowledge of what you need to qualify for a mortgage and the homebuying process.

Don’t get overwhelmed with the questions and figuring out where to begin the process of buying a home. Pa says that financial readiness is actually built from a lot of simple concepts, which form the basis of a financial coaching program.

Financial coaching makes it easy to understand if you’re ready for a mortgage by breaking it down into concepts that are easier to understand:

• How to build a budget to understand your cash flow and ability to save 
• Your credit history and how to improve your credit score (and maintain it) 
• How your debt-to-income ratio determines mortgage eligibility
• What kind of home you can afford
• What you need to do to increase your chances of being approved for a home loan
• Financial coaching also connects you to resources such as down payment assistance and first-time homebuyer education courses

A great financial coaching program shows you what those concepts mean to your situation. Even first-time homebuyers without any credit history can learn from financial coaching to put them on the path to homeownership.

One client of Pa’s didn't know her credit score when she started working with a financial coach at Twin Cities Habitat. "She knew it was bad, so she ignored it for a long time," Pa says. "When we reviewed her credit report together, she was surprised by how much it had gone up since she last checked." 

While she still needed to continue building her credit score and reducing her debt before she could apply for a home loan, with financial coaching the client had a better understanding of how her score was calculated and what debt-to-income ratios are. This foundational knowledge helped the client work towards and stay on the path to mortgage readiness.

The value of having someone on your side

Trying to buy a home yourself can also lead to misconceptions about the process. If you hear about someone who defaulted on their home loan, for example, you might be scared to look for a home loan yourself. Working with a financial coach gives you a perspective to help make the right choice for your needs, wants, and financial situation.

"A big part of financial coaching is having someone to check in with and be accountable to," Pa says. "If you don't have someone to work through things with you, you might think that it's not right or attainable for you."

A financial coach is there to learn your goals, understand your situation, and help you put together a plan that works for you. "With your financial coach, you can slow down and work on the things that will be most important when getting ready to buy a home. When you find a home you love, they can make sure you've got the financial knowledge and skills to keep it."