Buying a home is an exciting venture for most families. However, it can also be a scary and stressful time too. Whether buying your first home or the fifth, it is fun to daydream about what features you want, what neighborhood you’ll choose, and the memories you’ll soon make.
However, before buying a home, you will need to go through the home-buying process. So much goes into the purchase of a new home and many prospective buyers run into obstacles. Thankfully, there are ways to reduce the stress and frustration that can be caused by these issues. Check out these top tips for overcoming some of the most common home-buying hurdles.
Four Tips for Buying a Home
#1: Save for Your Down Payment
As you begin to research what it takes to finance your new abode, the idea of coming up with a down payment might be daunting. In some cases, you may need to put down 20% of the value of the home. For example, 20% of a $500,000 home is $100,000!
For many, coming up with this kind of cash in a short span of time is challenging — if not impossible. But when buying a home you’ll be relieved to know that, with some financing options, you may only need to put down 3–4% of the value of the home.
The good news is, the larger your down payment, the less you’ll need to borrow. This ultimately results in significantly lower monthly payments for the duration of your loan. How much you should save for your down payment depends on how much house you can afford. Let your individual needs and goals determine what works best for you.
#2: Find More Ways to Save Before You Buy a Home
The cost of buying a home encompasses more than a monthly mortgage payment. Plus the last thing you want to do is get in over your head with a house payment you can barely afford. Coupled with regular household maintenance and upkeep, this is a recipe for financial straits. While it’s wonderful to have a dream of owning your first home, it’s better to wait and set aside money so you can comfortably make your dream come true.
In addition to cutting discretionary spending, look for other ways to save. One great option is to move into a smaller apartment or rental. This could free up cash that can go toward your down payment or your new home’s emergency fund. Just be sure you don’t swap one expensive place for another. Carefully research available properties, and keep your commute in mind. These efforts now will pay off in big ways when the time comes to buy.
#3: Raise Your Credit Score
One of the biggest (and most common) barriers to buying a home is having a low credit score. You may have heard rumors about needing near-perfect credit to buy. In truth, while better credit will get you lower interest rates, most loans only require that you have a credit score of 620 or higher. According to CNBC, FHA Loans even allow borrowers to have a credit score of 500 (with a 10% down payment) or 580 (with a down payment of 3.5%).
Read How to Raise Your Credit Score Even When You Have Debt
Regardless of your credit score, it is always beneficial to take steps to raise your credit score prior to applying for a mortgage. To achieve this, always pay your bills on time, pay down credit cards with high balances, and remove any incorrect information that appears on your credit report.
#4: Keep Excellent Records If You’re Self Employed
If you are self-employed when buying a home, the financing process becomes far more complicated. Rather than simply providing proof of income in the form of employer-issued W-2s, you need to provide proof of your business income for at least the last two years. Although this sounds like it should be easy, it often isn’t.
To improve your odds of approval — and get the best possible interest rate — keep personal and business documents organized and separate. Get ready to provide additional documents that prove that you earn what you say you do, and consider going with a smaller bank that is experienced in working with entrepreneurs.
If financial freedom continues to feel elusive for you, it’s time for a change. If you want a “life-proof financial strategy,” you are the perfect candidate for The Purpose of Money: Masterclass Finances 101. Start the course today so you create a strong financial future.