November 5th, 2018 1:49 PM by Jackie A. Graves
you feel like you’re throwing away money every month for rent and would rather
start building equity yourself, you’re not alone. Although renters account for
37 percent of all households in America, half considered buying a home instead,
according to the Zillow Group Consumer Housing Trends
many renters would like to become buyers, finances are often a big concern for
renters wanting to make the jump to homeownership. Fortunately, with some help
and planning, renters can take steps now to prepare for homeownership in the
future. Here are a few ways you can prepare your finances to get out of the
renting world and into the life of homeownership.
together your down payment is one of the first things you’ll need to get
started on before you’re able to buy a home. Unless you’re eligible for a $0
down VA loan, chances are you’ll need at least some percentage of the home’s
value in cash. Saving up money or bringing in more money can be challenging,
and even more, time consuming. It’s important to get started on this phase
early in the home searching process so you’ll have enough saved by the time
you’re ready to pounce on your dream home.
commonly, people source their down payment the old-fashioned way—saving up over
time. If you’d like to move faster, or source your down payment in multiple
ways, you could always try cutting back on your current spending, selling your
unused belongings, and adding in some side work after your regular 9-5. See more creative ways to save for
your down payment.
use your FICO score to determine whether or not you’ll be a safe borrower or if
you’re more likely to be risky. So getting your credit score in order is one of
the most important steps you can take towards homeownership. Even if you think
you have near-perfect credit, taking a close look at your credit report can
prove to be valuable.
By getting a
copy of your credit report early in the process, you’ll have plenty of time to
review it for any errors, and then have time to dispute them, if necessary.
It’ll also give you clear insight as to what your credit score is if you don’t
already know. Minimum credit score requirements are about 580 for FHA loans and
620 for conventional loans. So if you discover yours is lower than that, you’ll
have time to work on it to bring it up so you can qualify for a loan. Since
checking your own score is considered a soft pull, so you can rest assured that
it won’t hurt your credit.
credit score could also help you score a better interest rate, so the earlier
you work on improving your credit score,
the more you could save in the long run.
house is expensive, so being able to show you’re financially stable will help
reduce scrutiny from lenders while you’re trying to get approved for a loan. In
general, lenders don’t like to see a flurry of recent big purchases. So, if you
can hold off on buying that new TV or going on a big trip, you might help
lenders view you as a lower-risk borrower.
to cutting back on big purchases, try to avoid opening up new lines of credit.
Having multiple credit lines can be an indicator that you don’t have the money
you say you do and lenders could be less inclined to approve you for the loan
One of the
easiest ways to see how much you can afford for before you actually go through
the pre-qualification process is to play around with an affordability
calculator. You can use our affordability calculatorto
plug in information about your income, monthly debts and down payment
information to figure out how much you could realistically afford, as well as
how much your monthly mortgage payments will be.
wondering if it’ll be cheaper for you to buy or rent, you can use the rent
vs. buy calculator. This is often referred to as the breakeven
horizon—how many years will it take before the cost of buying equals the cost
of renting. If you plan on staying in your home past the breakeven horizon,
buying might be the better option for you, but if you think you might move or
are in a temporary position, renting might pencil better.
If you think
you’d like to buy, getting pre-qualified now can
help give you insight into whether you’re actually ready. Knowing how much
you’ll qualify for, or even if you’re eligible for a loan, can help reduce some
stress later on, and help you search for homes in your price range.
pre-qualification process, a lender will take into account your income, debts,
assets and other details to assess how much they’d be willing to lend you. If
your lender happens to uncover any red flags, you’ll get a clear picture of
what steps you’ll need to take in order to qualify for a loan. And if you’re
going through the pre-qualification early, it’ll help ensure you’ll have enough
time fix any issues before you’re ready
to become a homeowner.
lenders will provide pre-qualification letters without doing a hard credit
pull, so you won’t need to worry about it hurting your credit. And you are not
obligated to work with a lender once you are pre-qualified, which makes it a
no-risk way to see where you stand.
Once you are
ready to buy, getting pre-qualified can help you be able to move quickly and
make an offer as soon as you find your dream home. With pre-qualification under
your belt, both agents and sellers will take you more seriously. It shows
agents that you’re organized and fully prepared to be a buyer, and that you
will be approved for the amount needed to buy the home you’re making an offer
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