5 Ways to Prepare for Buying a Home
发布时间:2018年10月12日
发布人:nanyuzi  

5 Ways to Prepare for Buying a Home

 

Angelique MacArthur

 

Home ownership is viewed as a rite of passage for many in North America.

 

But for many the path to home ownership can be confusing. After all, buying a home isn’t something people do that often, so there are many first-time home buyers.

 

As the housing market fluctuates, the importance of having a solid foundation and the right knowledge is key for first time home buyers to make sure they are making the right choice.

 

Starting your journey into home ownership is exciting and comes with many questions on how and where to start as well as how to make the right decisions throughout the process.

 

If you’re thinking of buying a home in the near future, these five tips can help you make sure you are fully prepared for your home purchase.

 

 1) Set a budget

 

Like any goal you set that requires an investment, setting a home buying budget that is unique to your situation is crucial.

 

The budget you create will help you in several key areas in your home ownership journey such as helping you determine your needs vs. wants, narrowing down the areas you are interested living in, and setting up a timeline and an action plan that keeps you on course.

 

To begin, check out websites such as Zillow, Trulia and Realestate.com to see what your budget affords you in the areas you are interested in.

 

Set up a budget to help you save your intended amount by your target date. When calculating your home saving plan be sure to include moving and closing costs as these are expenses that are often overlooked, in addition to these 10 expenses when buying a home.

 

The amount you take out in a mortgage is an important thing to consider as it can potentially take up a significant amount of your monthly income. A good rule of thumb when planning for your monthly mortgage payments is that the payment should not be more than 30% of your take-home income. This way you will be able to afford other expenses and financial goals in addition to your mortgage.

 

If you are interested in learning more regarding government loans and home ownership programs, the United States Government offers loan options through The Department of Housing and Urban Development and The Federal Housing Administration. Several programs and loan options are available for those who qualify. The requirements are well worth a deeper look as you research financing your home. You can also ask your loan originator which ones you qualify for. Learn more about your loan options at the official U.S. Government website.

 

 2) Make a savings plan

 

It goes without saying that money is a top priority in being able to purchase a home of your own. Nonetheless, saving such a large amount can seem like an overwhelming challenge.

 

A down payment is a portion of the total cost of a home that you will pay with your deposit. The remaining amount is the mortgage on the home that you will pay each month. The standard down payment on a home is 20%, though there are loan options to pay less than that (sometimes significantly less).

 

To begin or to bolster your savings plan, set your goal amount and target date by asking yourself questions to assess your true needs and desires in home ownership. Having a strong reason for taking on the project of home ownership keeps you motivated through the ups and downs of the journey. Once you have set your amount, complete a full review of your finances every three months to assess what you can minimize or cut out to increase your saving power and ensure there is no monetary waste.

 

Set up a budget and automatic transfers to a dedicated “home savings account” to help you save your intended amount by your target date. Also, investigate adding additional sources of income to your savings plan. To see some great options for how to make extra money on top of your 9-5, check out the ultimate guide to side hustling.

 

 3) Check your credit score

 

Another factor that plays a massive role in your ability to buy your first home is your credit score.

 

Your credit score is a summary of your financial history and is presented in a number that ranges on a predetermined scale from one of the credit score institutions. This number is a prominent factor in determining mortgage and loan rates when purchasing a home. It is extremely important to know this magic number and work towards getting it as high as possible.

 

Equifax, Experian, and TransUnion are the three nationally recognized credit reporting companies that house your credit score.  You are entitled to a free credit report annually from each of them and should request this to strengthen your financial home ownership plan. The credit report does not have your credit score on it, but it gives you a detailed snapshot of your history with these institutions. You will need your actual credit score as well to get the full picture of your financial history. Learn more about how to check your credit reports and be sure to keep up to date with this essential information.

 

The good news is that there are ways to obtain your credit score for free. Credit Sesame is one of those sites, and many have used it to access their credit score. In addition, credit cards that offer free credit score updating on your monthly statements are abundant. Be sure to see if your current credit card offers this or see if it is offered if you are opening a new credit card.

 

If you find that your score needs some work, add building your credit score to your list of things to do in preparation for buying a home. Be mindful of the things that affect your credit score such as being late or skipping payments on bills, using more than 30% of your credit card limit and not having a good mix of loan types and active credit cards. Read up on fantastic tips to improve your credit score here.

 

 4) Check your debt-to-income ratio

 

As a young adult there can be a build-up of financial responsibilities that can become a stressor on your home ownership dreams. One well known and major financial burden is student loan debt.

 

If you have a large amount of student loan debt and you’re wanting to purchase a house, the Debt-To-Income (DTI) Ratio can certainly cause issues with your home ownership plans. Your DTI ratio shows lenders how much your monthly debt commitments take from your monthly income. This ratio is important because it provides lenders with a more accurate snapshot into your ability to pay your monthly mortgage and other household responsibilities. If this ratio is too high, it may hinder you from receiving mortgage approval as your lender will include your potential mortgage debt in their calculation.

 

To calculate your DTI, divide your monthly debt obligations that happen every month such as student loan payments, car payments etc. by your gross (pre-tax) monthly income.

 

If the calculation is too high, you have a couple options. You can increase your income either at your 9-5 you can lower your DTI by increasing your income monthly (side hustles are great to help in this area) and by lowering your debt amount faster by increasing your payment amounts. Use this spreadsheet to track your student loans.

 

5) Don’t rush it

 

Buying a home can also be a pressure-filled decision. At times, it may seem like it is just the natural thing to do at a certain stage in your life especially if others your age or close to you are doing the same. However, taking on the responsibility of home ownership is not one to take lightly or be rushed.

 

Continue to do your research, stick firmly to your set budget and be diligent with your savings plan. When you encounter low points in the process focus on your initial reason for embarking on this journey in the first place.

 

While it may not always be easy, especially with a market that constantly fluctuates, you need to determine what makes it worth it for the long haul. Create a list of pros and cons of home ownership and speak with professionals in the real estate and finance industries who can help you fine tune your home ownership vision.