Even though it’s the only way some people can afford a home, paying rent seems like a waste of money. Not only are you making rent payments, which are often higher than your monthly mortgage payment, but you’ll never actually end up owning the place, which is sad.
Your landlord can indefinitely raise the rent, and, at one point, they can kick you out of the place you’ve called home for years and years.
When you own a home, on the other hand, you have a place that is really your own, and over time, your equity increases. This means that you have collateral that you can use for several viable financial projects.
So, for all those interested in taking this route, here are the top nine financial steps that will bring you closer to owning your home.
1. Start saving for a downpayment
You usually have to make a down payment of 10-30% of the home’s value. Most people borrow this money from friends and family or sell an asset, but some save up.
The simplest way to do this, outside of showing some incredible restraint, is to automate your savings. This works fairly simply: you find an option in your financial app or negotiate with your bank so that every time you get money deposited into your account, a fixed amount is automatically transferred into your savings.
Saving is not the only way to get the money you need. Working an extra job or learning how to buy cryptocurrency and make money this way can help. It doesn’t matter where the money’s coming from (as long as you’ve got it legally), only that you have enough to cover the downpayment.
2. Improve your credit score
Sooner or later, it will come down to your credit score. Just face it: You don’t have collateral (after all, you’re reading an article on how you can buy your first home), so you have to go with unsecured loans. This means that your credit score will be a deciding factor.
So, how do you improve your credit score?
There are several ways to do so; one of the biggest ways is to make all your payments on time. Even your utility bills go toward your credit score. Also, while you may assume that having no loans is a good thing, this is not the case from the standpoint of your credit score.
Every hard credit check lowers your credit score slightly, so avoid hard pull whenever you can.
Lastly, don’t cancel credit cards you don’t use, especially if you have a long credit history.
3. Reduce your amount of debt
Your income-to-debt ratio is another thing that will play a significant role in whether you get approved for a mortgage. However, even without that, the amount of debt you’re in will be very important for how you’ll be able to handle subsequent mortgage payments.
So, how do you reduce debt?
You can increase your monthly payment amounts or just the frequency of your credit payments. Then, you can consolidate or focus on the smallest debts first. The most intuitive strategy is to pay off the debt with the highest APR first since you’ll end up paying less (in total).
4. Get pre-approved
One of the biggest fears regarding getting a mortgage is getting pre-approved. This means the lender must review your financial information and history and determine whether you’re eligible for a mortgage loan. This means that they’ve checked your credit score, your debt-to-income ratio, and other relevant factors.
Getting pre-approved means they’ll give you the money if you apply up to a certain figure.
This is so important for many reasons. First, they’ll give you the green light to start negotiating. Also, it gives you additional leverage since sellers prefer to work with pre-approved buyers. This also means that closing the sale will be a lot faster.
Just keep in mind that mortgage approval rates depend on so many things and change over time.
5. Calculate all costs
One of the things that people often omit is calculating all the costs involved in closing the purchase of a home. However, closing a purchase is not the end of the journey. You also have to make the place livable. Even the cost of moving in can be substantial, and it’s not something you can afford to ignore.
Lastly, remember that your first mortgage payments, downpayment, and your last rent may overlap for at least one month. These are some insane costs that you’ll just have to endure.
Whether or not all of this is fair is completely irrelevant – it is the way it is. You’re not the first person facing these expenses, and you’ll endure it just like all the rest. Just make sure that you know what you’re facing.
6. Start leading a more responsible budget
Mortgage payments will lean heavily on your budget, so you must be more responsible and live with more austerity.
Just think about it: While you will get a monthly mortgage payment, if you’re just leaving your parent’s household or a place where you’ve lived with your roommates, there are so many extra expenses that you’ll face. Just because you have a mortgage to pay, it doesn’t mean that your utility bill or property tax will magically disappear.
What about your living expenses? They can also go up for a homeowner. The bottom line is that you need to be ready to face all of this, and the only way to get there is with a more responsible budget.
7. Research mortgage options
A mortgage means many things, and you must research all your options while shopping around.
You can’t know what kind of mortgage you should take if you can’t tell the difference between a fixed-rate mortgage and an adjustable-rate mortgage. So, the bottom line is that to take steps toward homeownership, you need to increase your financial literacy.
You’re at the threshold of some of your life’s most important financial decisions. You can’t afford to shoot in the dark and hope for the best.
8. Consult a financial advisor
There’s no better course of action than talking to a professional and asking them for advice. Remember that economic factors change constantly and that, to adjust, you sometimes need a customized financial plan.
Remember that this is not just a one-time thing. You’re not making a decision that will impact this year or this month. You’re making a decision whose effects last decades to a lifetime. So, there are many adjustments and subsequent financial choices that will have to take place as a result of it.
9. Increase your income
Previously, we’ve listed many expenses and added expenses from being a homeowner. To handle all of this, you need to have a sufficient income.
Now, when we say sufficient income, we say sufficient income for your current lifestyle, and the home that you own is a huge factor there. One way to figure this out is to find a calculator that will give you a general idea of “how much house you can afford.”
Also, the more money you make, the easier it will be to sustain this lifestyle and pay for the house. We know how this advice sounds – just make more money, don’t be poor, etc. However, it’s important to understand that finding extra work in the 21st century’s gig economy is easier than ever. To be a homeowner, you have to earn more.
While it’s a lot of juggling, owning your home is always worth the effort
Once you become a homeowner, you’ll become subject to one more loan and be bound to a single spot. While this may sound counterintuitive, you’ll also be freer than ever. You’re a king in your castle when you own a place and have a home to call your own. Everything you do will make more sense, and you’ll get the option of showing more pride in what you do.
