Buying a home requires a lot of preparation and hard work. And sometimes, it’s still not quite enough to get into a home that makes sense for your family. So, what should you do when it’s not yet time to buy a home? There are plenty of tasks to help you get closer to your goals in the meantime. Here are just a few ideas. Please be sure to consult your financial advisor regarding your particular situation.
Pay Down High Interest Debt
Debt plays a major part in your ability to be approved for a mortgage and even impacts your pricing. All of the other items on this list tend to be harder to approach when you are in debt, and especially if those debts are at higher interest rates. In particular, anything over 10% interested rate should be attacked with ferocity. Make sacrifices and focus on those debts. Lenders will want to see your overall cost to meet debt obligations on a monthly basis and subtract that from the amount you qualify for borrowing. Student loans or car loans at a low rate may not be your priority as you may be able to roll those into your new mortgage with a payoff or just keep them as they are when you purchase. But when it comes down to it, ditching that expensive car may be a sacrifice required to get into the house of your dreams.
Save Money for a Down Payment
Down payments are a major factor in determining which loan products you qualify for, and even which homes you are able to buy. Not all properties qualify for all loan products either. The more money you can save for a down payment, the more options you will have and the more favorable pricing you may be eligible for in your mortgage rates as well. Most folks also know that once you put down more than 20% of the value of the home, you won’t have to pay additional monthly mortgage insurance. That makes a big difference for many people.
When saving money, it’s important to think about what a likely monthly payment would be on the home you want to buy, and start adjusting to that financial reality by saving anything above your current housing cost to that number. So, if you are aiming at a home that will cost $4000/mo and your current rent is $2000/mo, you should aim to start saving $2000/mo toward that down payment so you’ll be used to the cost that’s coming your way when you buy.
Work on Your Credit Score
Credit scores directly impact the loan programs you qualify for and the rates you receive. That can be a difference of hundreds of dollars per month when you purchase or totally change the type and location of home you are able to afford. Using tools to monitor your credit and even consulting a credit or financial counselor can be well worth the time and money to get your score up where it needs to be. You are likely to need a credit score of 620 to qualify for some government loans, but you will want your score above 700 and even 740 to get the best pricing for your loan.
For many buyers, the key issue is cash flow, and your earning potential is a major factor in the goal of owning a home. How would it change your view of your job if you knew you needed to double your income to afford the house you want? That’s exactly what happened to me the first time I looked at qualifying for a mortgage. I loved my work, but knew that I needed to prioritize my growing family and their needs for a permanent home. It changed the way I pursued career opportunities and building new skills. Do you have career goals you aren’t actively pursuing in the short-term? Having a target for your home ownership goals will help put those career options in context.
Could your home goals actually be leading to bad decisions? What I mean, is that in your pursuit of a larger home, have to stepped up to a larger rental that is actually delaying your ability to save for an ownership opportunity? Many folks find themselves in the position, squeezed between their needs for space and their desire to purchase. What could you endure for a defined time if you knew the budgeting would get you to your goals? Living with family, downsizing, moving further outside of your desired neighborhood, could all help accelerate your home ownership goals. These are important questions to address together as a family and choose to sacrifice together for a common goal.
What Not to Do
As you can see, there are so many ways to prepare for home ownership, but all of these can be reversed into a list to avoid. Don’t take on high interest debt, don’t neglect savings or spend without budgets, don’t be careless with credit, don’t stagnate in your career, and don’t let your rental choices steal from your future. All of this comes down to intentionality and awareness. Have the hard conversations about how you will get to your goal and start working hard in that direction.
Let me know if I can help you along the way. It’s important to know what you currently qualify for and where improvements need to be made. I’m happy to take a look and get you on the road to your home ownership goals.
Call me at 206-407-9474 or apply online.