How to Make Buying Your Future Home Easier By Getting Ready Financially

How to Make Buying Your Future Home Easier By Getting Ready Financially

Owning a home is a big part of the American Dream, and it's got plenty of practical benefits. Besides providing a place for yourself and your family and friends to grow over the years, owning a house is also a secure investment opportunity with plenty of social and financial benefits. There's just one important thing to keep in mind: In order to see the many financial benefits that home ownership has to offer, you'll need to make sure your finances are up to scratch today.

If you're planning on buying a home in the near future, or even within a couple of years, there are some key ways that you can help put yourself in the best position possible. Here are five ways to make sure that you're ready to become a home buyer:

1. Pay Your Bills, and Pay Them On Time

Being timely with your bank statements is an important way to begin preparing for your future home purchase. If you're currently a renter, make sure you pay your rent on time each month; keep a thorough record of your big payments, and make sure that all of your checks are dated accordingly.

It is essential to have a good credit history when it comes time to buy a house (more on that in a bit), and having a disciplined savings pattern is a key part of that effort; establish positive financial and budgetary behaviors now, and you'll be more successful at saving and spending properly when you become a homeowner. 

How should you develop a disciplined savings pattern? Here are a few broad steps:

  • Before buying a home, make sure you know how to budget, have a reliable source of income, an emergency fund, have debts under control, and have a good looking credit report. To get started, check out our guide, "The Financial Checklist to Consider Before Buying a Home." 
  • Grow your savings - consider areas where your budget can be reduced, or where you can boost your savings with multiple sources of income
  • Pick a place to save - high-yield savings account, CD, no-load bond funds, etc.

If you establish these positive behaviors and attitudes early, you'll be better equipped to tackle the financial decisions that come along with buying a home. For instance, you'll be in a better position to decide on a realistic price range with your real estate team and mortgage lender, and you'll be able to set - and meet - your down payment goal,whether that's 20% or little as 5%.

2. Monitor Your Credit Closely

Keep on top of your credit history to ensure you're keeping it in a good level. If you're not entirely sure how your credit works, now is a good time to start learning how to read and understand your credit report. One important thing to keep in mind is that you shouldn't rely on "free credit score" services to monitor your credit; more often than not these online providers give a consumer score, and not a genuine FICO score, making them worthless in the eyes of mortgage lenders; indeed, only FICO is accepted by Fannie Mae/Freddie Mac and the Federal Housing Agency. 

As for that FICO score? Many consumers believe that they need a perfect 780 to buy a home - to their own detriment. In fact, according to research from Ellie Mae, reported by Keeping Current Matters, more than 50% of all approved loans came from FICO scores below 750.

With that said, it's still important to keep a close eye on your credit and make sure that it's in the best shape possible before beginning the home buying process.

For example, it's a good idea to try and pay off all delinquent accounts (that are late, charged-off, sent to collections, etc.) at least six months before applying for a mortgage. As Finance writer LaToya Irby elaborates over at The Balance:

"You need to establish a pattern of timely payments to get approved for a mortgage and get a competitive interest rate. If you have a recent late payment - or you've just paid off some delinquencies - wait at least six months before applying for a mortgage. The older the delinquency, the better your credit looks."

If you find yourself in a severe amount of debt, you should consider whether or not overspending comes in to play. It is important to deal with these lines before acquiring the costs and responsibility of homeownership, which can easily overwhelm prior credit issues.

Another big step you can take toward boosting your credit score? Work on establishing a viable credit history. As Bankrate suggests, don't open a slew of credit cards at once! Instead, take good care of two or three steady trade lines - such as credit cards, student loan payments - for at least a year. With time, these will greatly help establish some necessary credit history.

And one last little hack? To ensure your credit is optimal, shy away from big purchases in the months leading up to your buying a home, and if your credit cards are paid off, avoid using them for a month or two prior to applying for a mortgage. Why? Here's what Mint suggests:

"Paying the cards off 45 days in advance is plenty of lead-time. You can continue to use your debit, prepaid debit, or gift cards because those don't show up on your credit reports."

4. Save More Now to Increase Your Down Payment Later

Having the means to make a bigger down payment greatly helps with getting a loan approval. The higher your down payment is, the lower the risk is for your mortgage lender, so the more likely they will be to take you on. Putting 20% down also helps you pay less every month in the future, and avoid private mortgage insurance.

As we've discussed before, paying more isn't strictly necessary - in fact, 1 in 5 buyers puts down less than 15%. On the other hand, being able to make this offer might make the difference in a close situation or an unusual arrangement (e.g. a condominium building with high rental occupancy). Need help coming up with that down payment? There are plenty of resources and avenues available to assist people looking to buy a property; try searching for the one that best suits you with our guide, "Find Help For Your Down Payment With Down Payment Resource."

5. Research, Research, Research!

Understanding the costs associated with home ownership is an essential part of preparing to buy a home. Looking at a Chicago condo? Make sure you understand what home owners association fees are, and whether you'd be liable for them in your new home. What insurances will you need as a homeowner? As a homeowner, you'll be on the hook for a lot more day-to-day labor than you were as a renter; do you have a working knowledge of property taxes, utilities, and maintenance? 

You will also want to understand your mortgage options, so be sure and meet with a trusted mortgage lender (or two) for some information.  These days, much of this can be done on the phone or even online. To get started, don't be afraid to reach out to Real Group for help! If we can't answer your questions, we'd be happy to refer you to the service professional who can, whether that's an insurance pro or a trusted local mortgage lender. 

The Bottom Line?

Approach home ownership with advanced planning and a vigorous approach to financial responsibility. If you aren't in a place to buy a home now, make a timeline and work with a financial advisor to get your finances in order so that you can make the dream a reality. 

Wherever you are in the home buying process, don't hesitate to reach out to Real Group! Our team knows all of the ins and outs of buying and selling in the Chicagoland area. Why not start by taking a look at a few of our listings?

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