The realization that your monthly rental amount is increasing to the point of becoming a burden, as it is rising with consistency across the country, while wages are not keeping pace, might be keeping you up at night. This disparity, along with your growing aspiration for home ownership, and the opportunity to build equity with the income generated by hard work, intellectual effort, focus and productivity, is creating an emotional and financial craving for home ownership. For you, a one-word description of home ownership just may be “sanctuary.”
Ready for Home Ownership, Keep Budget and Goals at the Epicenter
Preparation, and research are crucial. Indeed, due diligence must be undertaken, before perusing the marketplace, but there is great reward in embarking upon this quest. Your goals must be clear to purchase the habitat which meets your functional needs, and all of your aspirations for the all-encompassing comforts for your family.
The following are 10 tips which will help you assess your financial readiness, the amount of income, debts, and expenditures you have, and how to fully understand the process, secure a reasonable mortgage, with the best rates and fees, and acquire your dream home.
- Create a specific budget for purchasing a home by calculating your income to debt ratio, which should include a complete list of monthly expenses you incur, such as all of your utilities, credit card debt, car payments, groceries, college loans, health care costs, personal loans, and more, divided by your gross income. If there is discretionary income, or other streams of income, determine how to put a portion into savings. Factor in the amount which is taken from your paycheck monthly for taxes and deductions.
- Improve, or continue to maintain, a great credit score. Pay down debt, pay on time, and add your cell phone, and utility bills to your credit file. Do not open many new card accounts and keep your unused accounts open. Always correct any discrepancies that appear on your credit report. Make sure to keep tract of your average utilization ratio by adding the amounts you spend, each month, on all credit cards, dividing that number by 12 (months). Hopefully, it is less than 30%, which lenders note, before determining your application for a mortgage. A high credit score, and low utilization ratio, are a win-win with lenders for a mortgage.
- Determine the best do-able way to save for a deposit. Lenders assume that mortgage applicants should be able to pay at a minimum, 20% down on your mortgage. Saving for that up front payment means tightening the budget in the near term and getting approved for a mortgage that works to put you, comfortably, into a home which is not a financial burden, in the future. Remember, one way to increase your deposit is to decrease your expenses. Not only can you cut the cord on your cable company fees in exchange for streaming services, but you can also cut your costs monthly by switching your auto insurance to a reputable company known for low rates, such as Freeway auto insurance.
- Know the market you are entering to purchase a home. Determine if it is a buyer’s or seller’s market and watch to see if homes selling in the neighborhood you choose are appreciating or depreciating in value. Time spent evaluating the price of similar housing, which has just sold in that area, is equivalent to the asking price for the home that interests you, determines if the asking price is fair.
- Being able to comfortably afford the mortgage you have been approved for, including maintenance for it, should not consume more than 25% of your household budget. Consider that you also must pay property taxes annually, HOA fees, and that costly repairs can arise at any time. If your mortgage consumers too much of your budget, it will be difficult to maintain a growing savings account, college tuition for your children, and an emergency fund of at least six months for unforeseen economic, or other issues which may occur.
- Seeking preapproval from a lender, you trust, who has competitive rates and excellent reviews, allows you to know the exact amount which can be borrowed. You will be able to look at affordable housing, and sellers will respect that you have the purchasing power they seek.
- Remember to factor in the fees and costs to finalize a mortgage, as these expenditures can be up to 5% of your loan. Often, the seller, if asked, is willing to pay part of these “closing costs,” which can save you money.
- Factor in the costs for having an independent home inspector, with excellent reviews, do a thorough evaluation of the entire home, foundation to roof, to save you costly repairs.
- Buy adequate home insurance to cover the cost of rebuilding if your home is damaged.
- Educate yourself on the various lending options for home buyers, such as fixed-rate, adjustable-rate, FHA, and other home loans to make an informed choice.
Purchasing your dream home is a huge investment, and an exciting one. By proactively educating yourself, budgeting, saving, paying off debt, getting preapproval, and becoming familiar with the marketplace, you will receive numerous, ongoing benefits for your efforts.