Written By: Sarah Szczypinski
Home ownership is a critical component of the American dream — an ambition for millions. And if you’re planning to be one of them before too long — and there’s pretty good odds you are, as Realtor.com reported in October that 52% of home shoppers expect to buy a home in 2017 — you’ve got some planning to do.
Sure, you’ve got to think about where you want this house and the type of home you want, but one of the biggest concerns the Realtor.com study found was finding the funds for a down payment. This makes sense, as the more you put down, the less you’ll have to secure when you apply for a mortgage. To help you improve your finances, you may want to consider the following steps.
Set Financial Goals
The path to homeownership can take time to forge, and it’s important to establish a plan as you begin. To help, you’ll want to do some market research to learn the about property prices in your desired neighborhood and the type of home you’d like. What type of neighborhood do you want to live in? What additional amenities do you want your home (or neighborhood) to have? What sort of financial situation are you already in?
Beyond that, you’ll want to think about the extras. Consider meeting with a Certified Financial Planner (CFP) to discuss how ownership extras like closing costs, property taxes and Private Mortgage Insurance (PMI) can increase your monthly mortgage payment, and discuss a buying timeline based on your current finances. Once you have done these things, you’ll have a better idea of how much you’ll need, how much you still need to save and a realistic time frame for when you should start applying for your home loan.
Work on Your Budget
Once you have your goals in mind, it’s time to start budgeting and improving your financial situation. With your timeline in place, now’s the time to create a budgeting plan that prioritizes home ownership. Begin with these basics.
- Cut Non-Essential Spending: Take a closer look at your budget and cut as much wasteful spending as possible. Are you paying for multiple streaming services on top of cable? Maybe it’s time for one of them to go. Do you have a plethora of ebooks you’ve downloaded but never read? Instead of adding to that collection, try reading what you have (or, if you have something else you want to read, head to the library — that’s free!). See where else you can trim spending in your budget. Remember, this is for the dream of homeownership! Use that as your motivator.
- Save Your Down Payment: One of the benefits of adjusting your budget is the ability to save for a mortgage down payment. Investing cash is required by most banks, and a larger up-front sum will reduce your monthly payments. Keep in mind most lenders ask that you put down anywhere from 3% to 20% of the cost of the home.
- Practice Making Mortgage Payments: You’re likely used to making rent payments, but it still may be a good idea to prepare for your mortgage payments. Consider establishing what your monthly mortgage payment would be based on your earlier research and set that amount aside each month (or figure out what you’ll need to do to get your budget to the point where you can do that). Consider putting these funds in a separate account to make sure you don’t touch the money — and eventually using this for your down payment or to make some future mortgage payments.
Sarah Szczypinski is a journalist for Credit.com specializing in credit repair, student loans, budgeting and other personal finance topics. Her work is featured on MSN, GOBankingRates, The Huffington Post, Lexington Law and CreditRepair.com, among others. She lives in Seattle with her husband and son.
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