Buying a Home
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For many of us, the purchase of a home represents a significant milestone in one’s life. However, with escalating property prices, it can seem like an insurmountable challenge, especially if you do no have parents or other relatives to help you out with the finances. This article will provide you with a few tips on how to get closer to realizing your dream of buying a home.
Affording a house, condo or similar requires careful planning, disciplined saving, and prudent spending. By following our tips and strategies, you will hopefully be able to navigate the home buying process with more confidence and eventually own your dream home.
Understanding the Basics of Home Ownership and Setting a Realistic Budget
Before we delve into the strategies to afford a house, it’s crucial to understand the basics of home ownership. Owning a home involves more than just the mortgage payments. Depending on the circumstances and local laws, you may also need to pay property taxes and similar costs, and you should also factor in things such as maintenance costs, utility bills, and homeowners insurance into your budget.
Therefore, the first step towards affording a house is to set a realistic budget, and adjust your expectations accordingly. When buying a house, it’s essential to buy what you can comfortably afford. A smaller, less expensive house with a manageable mortgage is better than a larger, more expensive one that could lead to financial strain.
Improve Your Credit Worthiness
In the United States, your credit score will have a huge impact on your creditworthiness, while other countries tend to have other systems in place to gauge a potential borrower. Learn about the situation in the country or state where you wish to purchase a home, and preferably do this well in advance, because it can take time to improve your creditworthiness.
A high creditworthiness will not only increase your chances of getting home loan approval but also attract lower interest rates and generally more favorable conditions.
To keep your creditworthiness up, pay your bills on time, keep any credit card balances low, and avoid having a high debt in relation to your income. Some types of debt can look worse in the eyes of the bank than other. For instance, having a well-managed student loan tends to be seen differently than you juggling four different credit cards, and so on.
In the United States, your credit score tend to increase more if you are actually using credit (e.g. a credit card) in a responsible way than if you are not using credit at all. Potential lenders want to see how you behave when you have access to credit. Therefore, never buying anything on credit can actually keep your score quite low, even though your economy is perfectly managed. It might seem contra intuitive, but there are situations where it is a good idea to get a credit card (with good terms and conditions) and use it for at least some of your monthly expenses. You can then pay off the debt in full when the bill comes. (Preferably pick a credit card where you do not pay any interest on the money as long as you pay the amount in full when the bill comes.) Handling credit this way can improve your score more than simply staying away from all types of debts.
Increase Your Income and Decrease Your Spending
Yes, this is a no brainer and you have probably already thought about it. To improve your economy and put more room into it for purchasing and owning a home, you might need to both increase your income and decrease your spending. Easier said than done, but even small changes can have a big impact over time.
To boost your income, look at various venues. You can ask for a raise, change jobs, stare a side hustle, or invest in income-generating assets. If you have more time, you could also consider training for a profession that would pay better than your current one.
Any money saved can be redirected towards your home saving plan, and it will also help you adjust to how life will be when you have a mortage to pay down and a house to maintain.
To start adjusting your spending habits, take a look at your entire monthly and yearly costs and see where it is possible to cut or find financially smarter solutions. Only you know your budget and what is possible. Common advice about eating out less often, make your own coffee and cut back on vacations are great for some, and pointless for the person who is already not eating out, who is never buying Starbucks, and do not spend on vacations.
Save for Down Payment
Most mortgage lenders require a down payment ranging from 3% to 20% of the home price. Start saving as early as you can. The larger your down payment, the smaller your loan will be, and the less you’ll have to pay in interest over time.
Instead of just keeping the money in a bank account, you can consider investing it. Your time horizone is imperative for your decisions. If you plan on buying a home soon, it is advisable to pick very safe investments. Someone with a longer time horizon can afford to put at least part of the money into a bit more risky investments to, hopefully, get a better return.
Consider Your Financing Options
There are several mortgage options available, including conventional loans and government-insured loans. Each of these options has different requirements and benefits. It’s advisable to research these options and choose the one that suits your financial situation best. Also, get in touch with potential lenders and see what you can get approved for. This will give you an idea of how much you can borrow.
Before you actually start house hunting, it can be smart to get pre-approved for a mortage loan. This makes it possible to act quickly if a good opportunity presents itself, and will show sellers that you’re a serious buyer.
Consider First-Time Home Buyer Programs
Depending on where you are buying a house, there might be local, state, and national first-time homebuyer programs can help you afford a home. These programs offer mortgage assistance, closing cost assistance, and down payment assistance.
Also check out special programs for special groups of home buyers. In the United States, there are, for instance, certain programs for the armed forces and veterans.