Do you have dreams of owning a home?
It’s best to start preparing for this milestone as early as possible depending on what your timeline looks like.
Buying a home has always been a goal for me. But when I became a mom and longed for more stability, it became even more important.
While there is nothing wrong with renting, it comes down to a personal preference along with what your situation is like.
If you are interested in buying your first home in less than 5 years, here are 5 things you can do to make the process go more smoothly.
1. Pay Down Your Debt
Homeownership can be expensive, which is why it’s best to have no debt or very little debt when you purchase a house. Having to pay your mortgage, bills and utilities, home maintenance expenses and make debt payments each month can leave your finances feeling a little tight.
Plus, when you apply for a loan, lenders will consider your debt-to-income ratio in order to determine how much you’ll be approved for.
It you have 6-figures of debt, that will play a significant role in your loan amount because lenders will compare your minimum monthly payments to your net income to see how much your debt is costing you each month, and if you can handle a mortgage on top of that.
The maximum debt-to-income ratio will vary from lender to lender, but most lenders prefer that debt payments take up less than 40% of your income each month. This is still a high amount, so ultimately, you’ll be the best judge in determining whether your debt will hinder your ability to pay for your mortgage or not because only you know your monthly expenses and what you can afford.
To prepare for homeownership, start paying off high-interest debt and your largest debt balances first. Earn extra money to make additional payments and cut back on other expenses to free up more money to eliminate your debt.
2. Build Up Your Emergency Fund
An emergency fund is important for anyone, but it’s extremely crucial for a homeowner since maintenance and repair costs can be expensive and unexpected. If you don’t want to go into debt in order to pay for additional expenses for your home, I highly suggest tripling your emergency savings.
Literally, take the amount that you currently have saved up and triple it. If you have no savings lined up currently, consider the price range you are looking for in a home along with the area and other desired features.
If you are interested in a fixer-upper, you will need a rather large emergency fund, but if you prefer a more move-in ready home, you may need less. Also consider your regular expenses. At the very least, try to set aside 6 months’ of living expenses before you buy a home, even if it’s only for peace-of-mind. The extra money will come in handy when you need it.Want to become a homeowner sooner than later? Here are 5 steps you can take to prepare Click To Tweet
3. Improve Your Credit
Credit is an important factor that will help determine which type of loan you qualify for and what your interest rate is. While you only need a 620 credit score for a conventional loan and a score as low as 580 for an FHA loan, the best interest rates will be reserved for borrowers with credit scores in the mid 700s, which is what you can aim for.
You can improve your credit by paying off all your debt, making on-time monthly payments on all your credit cards, and keeping your utilization low. It’s also important not to apply for any new credit a few months before you apply for a mortgage because lenders do not like to see that.
Clear up any negative marks on your credit report and file disputes early on if need be. With credit though, sometimes the best thing you can do is let time run its course to improve your credit history and allow any hard inquiries to fall off your report.
4. Get Comfortable With Living Well on Less
Home ownerships requires quite a few sacrifices. I’ve talked to many homeowners who say they give up or reduce certain activities like dining out, traveling often, and spending extra money on non-necessities just so they can comfortably own their home.
You may need to constantly refill your emergency fund after covering maintenance costs, paying for remodeling projects, and so on.
The worst thing you want to do is have a fancy house and become house poor, so it’s important to get your priorities in order and become comfortable with living on less of your income so you can be more stable. Also, living on less right now can allow you to have more wiggle room in your budget to set aside money for a sizable down payment on your home.
5. Start Learning How to Do Basic Home Repairs
Despite the costs of homeownership, you can save quite a bit if you learn how to safely DIY when it comes to small repairs and projects. Activities like painting, fixing creaky doors, landscape work, cleaning the gutters and basic plumbing can all be made into a DIY project.
You can start learning the skills necessary to take care of small projects in your home now by educating yourself on how to fix certain things, or asking a friend who’s a homeowner if you can help them with any projects around their home or learn a skill that they’ve mastered.
Being handy around the house can really benefit your wallet, but you must remember to leave serious issues to the professionals.
Homeownership isn’t always easy, but it can be rewarding and a simpler process when you take the time to prepare early on.
Are you interested in buying a home? What steps are you taking now to simplify the process when the times comes?