Achieving your home buying goals can be a stressful and complex process, but with careful planning and consistency, you can get there in no time! Here are some of the key steps to help you reach your goals this year.
Building Credit
One of the biggest influences on your ability to buy a home is your credit. Your credit history and credit score will determine whether or not you qualify for a mortgage as well as the rates that will be available to you. The first step in preparing to buy a home then, is to work on strengthening your credit. It’s important to develop healthy credit habits that will help maintain a good score over time. An article from NerdWallet lists these as the essentials when improving your credit:
- Making consistent payments. It is important to not only make your payments on time, but to make at least the minimum payment whenever possible. Paying a little extra whenever you are able to can also help boost your score.
- Keep credit card utilization to a minimum. NerdWallet recommends keeping utilization below 30% on each card you have. The lower the utilization, the higher the score.
- Try to apply for one credit account at a time. Applying for more than one credit account in a short period of time, whether it’s a credit card, auto loan, or mortgage, can cause significant damage to your score. The article says a good rule of thumb is waiting at least 6 months between applications.
- Keep credit card accounts open. Closing credit accounts can actually damage your score and increase the ratio of credit line usage by removing unused credit. So keeping those accounts open when possible is a good way to boost your score.
This article concludes by explaining that once you’ve established healthy credit habits, it is also important to keep track of your score and history to avoid any discrepancies. [1] Of course, there are many additional ways to effectively build credit, but starting with these basic tips will give you a foundation to build from when improving your credit score.
Save for Your Down Payment
Another key to achieving your home buying goals is effective saving. Start with a timeline of how long you will need to save to reach your target down payment amount. To calculate this consider these factors: how much money you can afford to set aside each month, what your price range for a home will be, and how much of the down payment you plan on covering yourself and how much you plan on using a loan to cover [2].
It’s vital to have a savings plan in place, which means having a timeline, as well as knowing how much you are going to set aside and how often. “One of the best ways to save for anything — including a down payment — is to set it and forget it. If you receive a regular paycheck, ask your employer to direct a portion of that payment into a savings account. If you’re a freelance worker or independent contractor, set up a recurring transfer from a checking account to a savings account to establish the routine” [2]. In order to to reach your goals, it’s important to resist dipping into your savings,no matter how tempting. To do this, you may have to periodically review and cut back on non-essential expenses, like multiple streaming services and cooking at home rather than eating out.
Get Pre-Approved
Once you’ve built up your credit and have significant savings set aside, it’s a good idea to start applying for pre-approvals. A mortgage pre-approval letter is a written offer from a lender that proves you are a serious home-buyer, and shows that maximum loan amount you would be approved for when buying. Applying for a few different pre-approvals will help you find the best option, and as long as they are all done within 30 days, shouldn’t hurt your credit.
Pre-approval also makes you look better to sellers. “The truth is… getting pre-approved can actually improve your chances of falling into the sellers’ good graces, and you’ll want to get it done as early as you possibly can in the home-buying process” [3]. The quicker you can get pre-approved, the quicker you’ll know A) whether or not you qualify for a home loan, and B) what your budget will be for a loan. Sellers will also be more confident in selling to you because they know you have a stamp of approval from lenders saying you can afford their home.
Organize Your Wants and Needs
When buying a new home, it’s important to prioritize your wants and needs in order to focus your search on homes that meet your specific requirements. Start by making a list of everything you want and need in a home, such as the number of bedrooms and bathrooms, a specific location, a certain amount of living space, and any special features or amenities you’re looking for. Once you have your list, consider which items are must-haves and which are nice-to-haves, and separate them into a list of wants and a list of needs. Then, rank your needs in order of importance, starting with the most critical features, like the number of bedrooms or bathrooms. Then do the same with your list of wants, starting with the features that are most important to you, such as a swimming pool or a fireplace.
Once you begin viewing potential homes, be sure to revisit your lists periodically. You may find that your priorities shift based on what you see and learn during your home search. Doing so will help you stay focused on what is most important to you as well make informed decisions when looking for your dream home.
The Takeaway
When it comes to working towards your home buying goals, it can be easy to get discouraged or overwhelmed. However, with a clear plan in place, they may be more achievable than you realize. Even something as small as improving your credit or getting a pre-approval letter can be a major step towards your dream home. Reach out to a real estate professional and get started today!
Sources
[2]https://www.bankrate.com/mortgages/how-to-save-for-a-down-payment/#save
[3]https://www.realtor.com/advice/finance/do-i-need-a-pre-approval-letter-to-make-an-offer/