In this economy, buying your own home has become a big achievement and a milestone that many people are putting off until they’re ready for it. And this is a smart decision: buying a house is a significant financial responsibility that’s best to think through before committing.
However, with the world going through a drastic change, and the market seeing a drop and then a surge in prices, many people feel pressured to buy their own homes.
The Best Time to Buy a House
It’s important to remember that the best time to buy a house is when you’re ready. It’s not when the demand is low so prices are low, and neither is it when you find a property for a good deal. The number one deciding factor should always be your readiness for the financial responsibility you’ll be making. That’s why it’s important to prepare for it.
Unlike buying a computer or a new phone, a house brings along a whole new set of responsibilities. There are going to be credit checks, mortgages to meet, and taxes to file. But that shouldn’t deter you from achieving this important milestone. To better prepare for the process of house hunting and eventually, buying, here’s a quick 6-step guide to help you out.
Step 1: Improve Your Credit Score
Your credit score is among the defining factors of when you’re able to buy a house. Always monitor your credit score: you can see it in the credit reports you get every year, or you can look at whether your local credit card provider can show it for you. On average, mortgage companies or programs require a credit score of at least 620 or even 580 in some programs.
Improving your credit score comes next, and the best way to do that is to aim for at least 30% credit utilization. Always pay your balances in full every month. And if that’s not possible, at least keep 30% of your credit limit still available.
Step 2: Manage Your Debts
Along with improving your credit score, managing your debts is a critical part of the home-buying process. Figure out your debt-to-income (DTI) ratio, or how much of your monthly income goes to paying a debt. In most cases, lenders would rather take a DTI ratio that’s no higher than 36-43%. However, the mortgage program matters as well, as some payment schemes allow for a higher DTI but with caveats, like longer payment terms or such.
Step 3: Start Saving Up
Of course, you can’t achieve your dream of owning a home if you don’t have any cash for it. That’s why you must start saving up as soon as possible. Real estate programs always require a down payment, and that’s an amount you have to present in cash. Saving up money is as straightforward as it gets, but how to generate money is something that can vary from person to person.
Depending on when you intend to make the purchase (say a year, or in two years), consider doing a second job, in which all your salary there goes to your savings. It’s tough, and it’s not for everyone, but if you have other skills you can make a profit with, this is the best time to put them to good use.
Step 4: Establish a Budget
Next is to figure out a budget. The price of a property will depend on the location, so having a ballpark figure of what you want to afford is a good start. Also, think of how much down payment you can provide, as that will affect other factors, like monthly mortgage and other costs. By establishing a budget, you’re also narrowing down your options when it comes to buying a property- which is a good thing, as you don’t want to be blinded by amenities and features, only to realize you can’t afford the mortgage.
Step 5: Start Looking for Financing Options and a Real Estate Agent
Once you’ve improved your credit score, manage your DTI, and have money saved up in the bank, the next step is to look for financing options. Research any real estate programs available in your area- you’ll be surprised by the sheer amount of options there are. Getting your pre-approved can also hasten the process of buying a home. All that’s left is for you to reach out to a real estate agent to choose a house and close the deal.
Preparing yourself to afford a house is always an arduous process. But it’s a journey almost everyone must take to afford a home. All that’s required is smart and hard work.