1. Learn About the Process and How Much You Can Afford
The process of buying a home is not one to enter lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
Keep in mind, when you start, you’ll want to get pre-approved for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time.
According to ConsumerReports.org:
“Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”
Pre-approval will help you better understand how much you can afford so you can confidently make a strong offer and close the deal. Today’s low inventory means homebuyers need every advantage they can get. If you were pre-approved prior to the beginning of the health crisis, you may need to go through the process again, as lending standards have evolved in recent months.
2. Save for Your Down Payment & Closing Costs
In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment and closing costs is another critical step.
What’s a Down Payment?
According to Bankrate:
“A home down payment is simply the part of a home’s purchase price that you pay up front and does not come from a mortgage lender via a loan.”
Thankfully, there are many different down payment assistance resources available to potentially reduce the amount you may need to put down on your home purchase.
What Are Closing Costs?
“When you close on a home, a number of fees are due. They typically range from 2% to 5% of the total cost of the home, and can include title insurance, origination fees, underwriting fees, document preparation fees, and more.”
If you’re concerned about saving for these items, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund.
“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”
Before you know it, you’ll have enough in your savings if you’re disciplined and thoughtful about your process.
If homeownership is on your wish list, identify what you can prioritize now to help you get there. Let’s connect to determine the steps you should take to start the process today.