Today, there are 79.36 million owner-occupied homes in the US, which is equal to 65% of all houses. It’s the dream to stop throwing away wads of cash to a greedy landlord while living under their rules. And even if you’ve been in a rental for years, it can never truly feel like home.
So you might want to become a homeowner in the near future. But before you do so, you need to prepare so that when you’re given the opportunity, you can purchase the home of your dreams without issue.
Keep reading to see what you need to do so it’s easier to become a first-time home buyer.
This one sounds painfully obvious, but you’d be surprised at how many people are terrible at saving. And they often underestimate how much money they need.
In addition to all the associated costs with buying a home, you need to also account for emergencies, living expenses, and more. Generally speaking, you should have at least 3 to 6 months’ worth of living expenses saved up before considering a property purchase.
You should also break down your monthly spending to make sure you can afford a mortgage payment on top of that. From there, you can adjust how much you’re putting away monthly in your savings.
Fix or Improve Your Credit Score
When was the last time you checked your credit score? If you’re guilty of missing payments, then it may not be in great shape.
You should get the best credit score possible before applying for a mortgage, as a low score can hurt you. It’ll be harder to get approval, the amount will be lower, and the interest rate will be higher.
Make it a point to make all payments on time and you’ll see your credit score rise. Finding and correcting any errors on your credit report will help too.
Pay Down Your Debt
Do you have maxed-out credit cards? Then you’ll want to pay those down as much as possible before applying for a mortgage. Banks will look at your debt-to-income (DTI) ratio, and the higher it is, the less likely they’ll approve you for a loan; if they do, it won’t be for a very high amount.
In general, you’ll want to get your balances down to 30% or less. Needless to say, you shouldn’t be maxing out your credit cards when you’re thinking of buying.
Don’t close any active credit accounts though! You might think closing accounts is good so you can resist temptation, but this will hurt your credit score.
Keep Your Current Employment
Lenders want to see that you have a stable and steady job before they give you a huge amount of money for your mortgage. So switching jobs before you apply for one won’t look good, especially if you start a completely different career.
You’ll want to be in the same job or industry for at least 2 years. If you must switch employers, then keeping the same role between companies is fine.
Don’t Make Big Purchases Before Buying Your Home
You shouldn’t buy big ticket items before you apply for a mortgage, or even while you’re waiting for it to close. Many people mistakenly think that if they’re preapproved for a mortgage, nothing else can go wrong. But the reality is, lenders will do one last credit check before closing.
If you make a large purchase with credit before you secure a mortgage, this can dramatically raise your DTI. And as a result, this can cause a lender to pull out.
Get a Good Real Estate Agent
You can try buying a house on your own, but it’s not recommended, especially if it’s your first time. A reputable real estate agent can guide you through the entire process so it’s not as stressful.
In addition, they know the local area like the back of their hand, so they’ll know exactly which properties will satisfy your wish list. They can go with you to the open houses and help point out flaws you might not notice. Most importantly, a good real estate agent will help you avoid overpaying.
All these things will make it worth every penny spent on their assistance!
Get Pre-Approved Before Looking at Properties
Mortgage pre-approval is a must before you start shopping. Not only does it give you peace of mind, but it also gives you a better idea of what you can afford.
In addition, having a pre-approval letter can give you a leg up against other buyers. They know you’re financially stable enough for the purchase, so they’ll be more inclined to choose you as the buyer.
Check Out Bank Foreclosed Homes
If you find that the properties in your dream location are too expensive, don’t give up hope yet. An excellent alternative is buying bank foreclosed homes such as those from URB Chicago, as they’re priced attractively. You can even get financing with no credit checks, which can further propel you toward becoming a homeowner.
Do note that you probably won’t get a luxurious property. In fact, many of them need some TLC before they’re livable.
But if you’ve run out of options and really want to be a homeowner, then some compromises might be worth it! The upside is, with renovation work, you can instantly customize the home to your tastes.
Get the Home of Your Dreams
The home of your dreams might’ve seemed out of your reach. But after reading this article, maybe it’s more feasible than you thought!
With proper preparation, homeownership can be within sight, especially if you’re smart about it and work hard. So start building your future today and soon, you’ll be able to say goodbye to renting and hello to owning!
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