Are you ready for home ownership?
Buying a home is oftentimes the biggest purchase we'll make in our lives – and it's not an easy one.
When you add up the amount you'll likely need for a down payment, closing costs, realtor fees, repairs, renovations, etc., costs can add up very quickly.
But with huge investment, comes great reward, and owning a home is truly a dream come true for so many people. In fact, it's 23% cheaper to own a home versus rent a home – which helps a lot.
Investing in a home should be treated just like any other huge investment, with tons of patience and perseverance.
If you're planning to buy a home within the next 5 years or so, it's time to prepare yourself for it. Starting now will give you the upper hand in finding what works best for you and how to prepare for it financially.
Here are 5 things you should start doing now to make sure you're prepared for home ownership down the road.
1. Get Serious About Your Credit Score
First things first, your credit score plays a huge role in securing your mortgage, so the sooner you focus on improving your score, the better.
You can review your credit score for free instantly with Credit Sesame, and they will also provide a summary of your credit report, so you can review the same information potential lenders will have access to.
Having perfect credit isn't necessary for becoming a homeowner, in fact, a credit score of 640 is the most common benchmark for determining a home loan.
Working towards improving your credit score now will pay off immensely as you begin your search for a home.
Remember, the higher your credit score, the lower your monthly payments will likely be.
2. Figure Out How Much You Can Actually Afford
Lenders determine the loan amount you qualify for based on your income, credit score, assets, and debts. BUT, that doesn't mean you can actually afford that much!
Why? Lenders only get a small picture of your spending habits and savings based on those determining factors mentioned above, so it's safe to say that their estimates on how much you can afford to invest in a home are generally educated guesses (not definitive answers).
To get a better idea of how much you can afford and should spend, try this free online calculator from credit.com.
Also, something to keep in mind is the length of employment you've had at your current job when applying for a mortgage.
Lenders generally like to see that you've held a position with the same company for at least 2 years, but are still happy to work with clients when that's not the case. Outlining your personal situation in a letter to the lender can usually do the trick.
3. Plan for the Down Payment and Closing Costs
Down payment and closing costs are different for every homebuyer, but it's important to start setting aside money for them now.
Remember, the more you put down initially, the lower your monthly payments will be.
If you put down a smaller amount, say 5%, you'll likely be charged a higher interest rate.
It's probably obvious that lenders prefer to secure a higher down payment, 20% for example, which will likely get you lower interest rates and reasonable monthly mortgage payments.
4. Plan an Emergency Fund
You don't need to own a home (yet) to know: Things can get expensive really quickly.
When you finally settle into your home, you'll probably realize that there will always be some type of additional cost(s) to homeownership that you hadn't thought about before. This is pretty normal, but it's crucial to be prepared for it.
Big or small, these costs will likely come up when you're least expecting them. To set up an emergency fund, try setting aside the equivalent of a few months income to make sure you don't get too stressed when unplanned and unwanted things happen.
5. Connect With a Great Realtor
Liking and trusting your realtor should be high on your priority list as you start house hunting for your home.
He or she will have a pretty significant impact on your home search, so it's important not to rush the process of finding one.
I suggest meeting with a couple realtors and even asking people you know for recommendations before choosing the 'one.'
When meeting with them, always ask if the neighborhoods you're interested in are part of the realtor's usual areas of sale. Connecting with a realtor who is familiar with the area you're looking into is often just as important as liking them.
Are you hoping to buy a house in the next 5 years?