Are You Ready To Buy?

Navigating the Process of Home Ownership

Owning a home is part of the American dream - a milestone investment, and place of security for years to come. Buying a home is exciting, but it can also be a bit intimidating or even overwhelming at times. Few homeowners start the process feeling totally confident, which is why it’s so important to have a qualified REALTOR® looking out for your interests every step of the way. Here are a few tips to help you navigate the process.

Preparing to Buy

How much house can you afford?
Before you get too attached to a particular house, check your monthly budget to determine how much house you can afford. Be sure to leave room in your budget for other housing costs (HOA fees, taxes, insurance, etc.), and the rule of thumb is no more than 25% of your monthly take-home pay. Property tax rates and homeowner’s insurance costs vary, so check with your real estate agent and insurance company for estimates to calculate how much house you can afford.

Check and clean up your credit
Long before you start home shopping, you must make sure that your finances are in order. If you haven’t started the process of saving and making strategic financial decisions, it can take several months to make sure your credit history is appealing to lenders. Start by running a credit report on yourself. This does not affect your credit, and is free to do yearly at www.annualcreditreport.com. Secure a report from each the three major credit-reporting agencies, then focus on the areas you can improve. You can dispute inaccurate items by contacting the consumer reporting agency and the information provider in writing. Also, make sure that you don't buy ANY big-ticket items (furniture, appliances, a new car) prior to buying a home! Lenders not only look at how much credit you're using, but also consider how much credit you have available. This is not the time to be opening any new accounts or closing existing accounts.

Saving for a down payment
The amount you need to save for a down payment varies greatly by your lender and your credit qualifications, and it could take several years. While 20% may be the “gold standard,” many of today’s buyers are putting down 5%-10%, or even as low as 3% of your total home’s purchase price if you are willing to take on the cost of mortgage insurance.

Here are a few things you can do to start saving each month. Write down what you earn versus what you owe so you are clear about how much is coming in and how much is going out.

  • Consider eliminating recurring expenses for services you rarely (or never) use. Even $10-$20/month adds up over a year.
  • Using cash instead of credit will make you more conscious of your spending and less likely to splurge.
  • Do the math and stop the morning coffee run, especially if you add something from the bakery. Your wallet (and waistline) will thank you.
  • Cut back on eating out and/or take advantage of “early bird” dining specials. When you make more meals at home, you often have leftovers for lunch the next day.
  • Start a side job. Evaluate your skill set and explore freelancing to generate some extra cash each month.
  • Use momentum to pay back your debt, and pay down the highest interest rate card first. Once a card is paid off, transfer that money to the next card, and pay it down even faster.

Other things you can do are to remove temptation, think before you spend, sell things you no longer want or need, and put your purchases into context. Is that shiny object or pair of concert tickets worth a week’s worth of work? It will take dedication and sacrifice, but every little bit helps!

You’re off to a good start, but there are a lot of moving parts to this puzzle of home ownership. This list is by no means exhaustive, but will point you in the right direction.

 

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