Tina McManus' Blog
Buying a home will likely be one of the largest financial decisions you will make in your lifetime. While this may seem scary at first, it’s worth noting that buying a home can also be a valuable financial investment.
When it comes to preparing to buy a home, many people just wait until they run out of room in their apartment before deciding that they need to upgrade to a home. A better approach, however, would be to start planning for your first home a year or more in advance.
Saving for a down payment is a vital step to making the best long-term financial decision. A larger down payment can help you pay off your home sooner, pay thousands or tens of thousands less in interest, and start using your home equity as an asset.
But, saving for a down payment is easier said than done. So, in this post, we’re going to talk about some of the ways you can aggressively save for a down payment so that, when the time comes, you can achieve long-term financial security from your investment.
Setting your savings goals
The first thing you should be thinking about when saving for a down payment is what your goals are in a home. Setting realistic goals in this phase will make saving for your down payment more feasible and less discouraging.
Think about what you really need from a home at this point in your life and compromise where you can.
Remember that on top of your monthly mortgage payments, you’ll likely also be paying for taxes, insurance, utilities, homeowners association fees, and more.
Save on a timeline
When setting your savings goal, make sure you’re aware of the timeframe you’re working with. If you want to buy a home next year, you’ll need to focus on short-term savings options. However, if you’re okay with renting for the next 5 years, investing your money could be a better option.
Lock away your savings
Treat your down payment savings like an emergency fund. Open a separate account, automatically deposit a portion of your pay into the account, and never withdraw from it. To do this, you will, of course, need to already have an emergency fund with a month’s expenses in it.
However, once you’ve established your emergency fund, start immediately depositing into your savings account.
Pay off credit cards
It may seem like saving for a down payment is more pressing than paying off old debt. However, the numbers will show that making interest payments on your credit cards is essentially throwing away money that could have been used toward your down payment savings.
Adjust your spending habits
While it isn’t easy to start spending less once you’ve built a standard of living, there are ways to spend less money and still lead a fulfilling life. Think about where your money goes each month, including bills and services you might pay for.
Now could be the best time to cut the cord and start using a service like Hulu to save $50 or more each month.
Time for a raise?
If it’s been some time since your last pay raise, now could be an ideal time to speak with your employer. To improve your chances of success, don’t discuss reasons outside of work that might be influencing your decision to ask for a raise (such as saving for a down payment). Rather, back up your request with evidence of your accomplishments at work.
If you’re in the market to buy a home, you’re probably learning many new vocabulary words. Pre-approved and pre-qualified are some buzz words that you’ll need to know. There’s a big difference in the two and how each can help you in the home buying process, so you’ll want to educate yourself. With the proper preparation and knowledge, the home buying process will be much easier for you.
This is actually the initial step that you should take in the home buying process. Being pre-qualified allows your lender to get some key information from you. Make no mistake that getting pre-qualified is not the same thing as getting pre-approved.
The qualification process allows you to understand how much house you’ll be able to afford. Your lender will look at your income, assets, and general financial picture. There’s not a whole lot of information that your lender actually needs to get you pre-qualified. Many buyers make the mistake of interchanging the words qualified and approval. They think that once they have been pre-qualified, they have been approved for a certain amount as well. Since the pre-qualification process isn’t as in-depth, you could be “qualified” to buy a home that you actually can’t afford once you dig a bit deeper into your financial situation.
Getting pre-approved requires a bit more work on your part. You’ll need to provide your lender with a host of information including income statements, bank account statements, assets, and more. Your lender will take a look at your credit history and credit score. All of these numbers will go into a formula and help your lender determine a safe amount of money that you’ll be able to borrow for a house. Things like your credit score and credit history will have an impact on the type of interest rate that you’ll get for the home. The better your credit score, the better the interest rate will be that you’re offered. Being pre-approved will also be a big help to you when you decide to put an offer in on a home since you’ll be seen as a buyer who is serious and dependable.
Things To Think About
Although getting pre-qualified is fairly simple, it’s a good step to take to understand your finances and the home buying process. Don’t take the pre-qualification numbers as set in stone, just simply use them as a guide.
Do some investigating on your own before you reach the pre-approval stage. Look at your income, debts, and expenses. See if there is anything that can be paid down before you take the leap to the next step. Check your credit report and be sure that there aren’t any errors on the report that need to be remedied. Finally, look at your credit score and see if there’s anything that you can do better such as make more consistent on-time payments or pay down debt for a more desirable debt-to-income ratio.
Owning a house is a mark of reaching adulthood for some people. It's a sign of financial independence. Having a house to call your own also alerts people to the fact that you trust yourself. After all, you don't know what's going to happen in the future.
Just because you want a house badly doesn't mean you'll get one
And a lot could happen. Job changes, relationship additions and subtractions and personal goal changes are just a few shifts that could occur after you buy a house. You really do need to trust yourself to take on the type of expense that can easily take 30 years to pay off.
It takes courage to own and care for a house, to keep a house in good functioning condition. Another thing that it takes courage to do is to walk away from the chance to own a house. If your finances aren't in good condition, it may very well be hard for you to own a house.
Find a lender who will approve your mortgage and you might struggle to make your loan payments each month. Worse, you might pay your mortgage for five to seven years only to lose the house, tossing away the money that you invested in closing costs, mortgage insurance and homeowner's association fees.
Why paying mortgages could be hard
Risks of losing your house or struggling every month to make mortgage payments is one of the leading reasons why poor finances is the top thing that could make it hard to own a house. Emotion is another major thing that could make it hard to own a house. Besides emotion, there are other key factors that could cause you to struggle with a mortgage. These factors are:
- Divorce - A contentious divorce could easily leave you in a financial bind. You might be responsible for paying your ex-spouse's housing expenses, making it hard to own a house of your own.
- Lifestyle - Frequent travel, a love for loud music and a strong social appetite could make it hard to own a house. Your lifestyle could make it hard to comply with homeowner's association rules. It could also create problems with people you live near.
- Neighbors - Although money is the leading thing that could make it hard to own a house, neighbors might be the second thing that could keep you from home ownership. Disruptive neighbors, hateful neighbors and contentious neighbors could drag you in and out of court so much that you spend years paying legal fees. Because you're dealing with the legal issues, you might not pass a lender's mortgage qualification guidelines.
Money isn't the only thing that makes owning a house hard
Money, emotion, social habits and relationships could make it hard to own a house. They could cause you to hold onto bad habits. These four things could also cause you to develop destructive relationships with neighbors.
Develop destructive relationships with neighbors and you could be forced out of your house even if you make your mortgage payments on time. Upset neighbors won't hesitate to pick up the telephone and call law enforcement. They also can make living next to them so uncomfortable that you choose to move just so you can have peace.