Preparing for Homeownership: What You Need To Know
Realtor.com recently shared '5 Habits to Start Now if you Hope to Buy a Home in 2017.' Below are the top three from their list with a brief description.
#1 - Automate Your Down Payment Savings One way to jump start your down payment savings is to automate your checking account to automatically save a small amount of your paycheck into a separate savings account or ‘house fund’.
“Amassing enough for a down payment takes discipline & perseverance, but setting up automatic savings can make it easier. If you never see the cash, you won’t spend it.”
#2 - Build Your Credit History & Keep It Clean When you go to apply for a mortgage, lenders will want to see that you have been able to pay off past debts. This means staying on top of your student loans, credit cards, and car loans and paying them on time! Credit bureaus recommend using no more than 30% of the credit available to you.
#3 - Practice Living on a Budget Downsizing your spending now will allow you to save more for your down payment & pay down other debts to improve your credit score. A study by Bank of America showed that “95% of first- time buyers were willing to make sacrifices to buy their home faster.” The top 3 sacrifices cited by by Millennials when saving for a home are: cutting back on new clothes, a new car, and travel.
Know Your Credit Score
Knowing your credit score and getting a recent copy of your credit report is one of the first steps that you can take toward knowing how ready you are to start the home buying process.
Make sure all the information listed on your report is accurate and work to correct any mistakes. The higher your credit score, the more likely you will be to receive a better interest rate for your mortgage, which will translate into more ‘home for your money.'
Here are some tips for improving your credit score:
- Make payments, including rent, credit cards, and car loans, on time.
- Keep your spending to no more than 30% of your limit on credit cards.
- Pay down high-balance credit cards to lower balances, and consider balance transfers to free up credit.
- Check for errors on your credit report and work toward fixing them.
- Shop for mortgage rates within a 30-day period — too many spread-out inquiries can lower your score.
- Work with a credit counselor or a lender to improve your score.
Show Sellers You Are Serious... Get Pre-Approved
Getting pre-approved is one of the key steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted. We discussed getting pre-approved in a separate article here.
Ask Your Lender About Down Payment Assistance Programs
When you meet with your lender to become pre-approved, also ask them if there are any down payment assistance programs that you may qualify for. There are hundreds of different programs throughout the country.
Eligibility requirements vary depending on your location, and are generally limited to first-time and/ or low- and moderate-income homebuyers. Several programs specifically benefit veterans, Native Americans, and workers employed in education, health care, law enforcement, and firefighting.
The U.S. Department of Housing and Urban Development (HUD) gives grants to state and local organizations nationwide. These organizations, in turn, use these funds to help homeowners bridge the down payment gap.
Every little bit helps when accumulating the funds needed to get you into your dream home.
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