One significant life experience everyone goes through is buying a home. Some individuals experience this life event sooner than others; however, no matter when it happens, you need to make sure your bank account is ready for it. There are many steps you need to take to ensure you are financially prepared to make such a substantial investment. Home buying should be seen as an investment because you are taking your hard-earned money and hoping your purchase pays off in the long run.
For example, some people may buy a home like a fixer-upper and find that it has more problems than they initially thought. If this is the situation, then your investment may be considered as a setback. As you can see, home buying is just like any other investment, only this one is more important because it is an investment for you and your family.
The question is, how can you financially prepare for this event now to be able to invest later? There are at least three major financial factors that you need to keep in order. These factors consist of credit, savings funds, and financial documentation. Each of these components holds its own significance in the home buying process. Let’s arm you with everything you need to know to be a home buying expert.
Before you go researching loans and talking to your bank about your options, you need to make sure your everyday life is in order. As harsh as that may sound, the home buying process is a long adventure that requires extra attention.
You should be at a point in your life where events have calmed down. For example, if you just had a baby, now would most definitely not be the right time. You and your partner are going to be very occupied and have very little time to do something as simple as keeping your home clean. At times like this, you need to prioritize your duties and try not to have any added stress.
Another example of a hectic time in one’s life would be if you just received a promotion at work. A promotion comes with a ton of advantages (hopefully) and some disadvantages. For instance, some benefits may be a pay raise, new office, or you may just be one step closer to your desired position. While these are all fantastic, you may need to put in some extra time and effort to prove your worth at work. A promotion comes with significant responsibilities and can be very time-consuming.
Therefore, before you go jumping into the process, make sure you have minimal added stress and that you are ready to apply some effort. Some individuals believe that a real estate agent or a loan officer might do all the work for you. However, this is not the case. You need to have everything to not only help them, but to help yourself by shortening the duration of the home buying process.
First, you need to get your credit in check if it is not already. By the time you are 21 years old, you should have already built some type of loan. If not, you are behind. There are many ways to build your credit score. However, it is a timely process that requires an adequate amount of effort. You cannot make your credit score overnight; it requires attention and personal discipline. Your credit score says a lot about your personality and demonstrates that you’re responsible and trustworthy.
Are you wondering how to check your credit score? There are plenty of ways to check your score. One option may be requesting your credit score through your bank. Some commercial banks offer this luxury to customers; however, other banks may not. It never hurts to ask questions when it comes to essential aspects of your life. If your bank is unable to do this for you, then you can always download software applications like Credit Karma. No matter how you do it, it’s still good to know where you stand, especially before embarking on a journey like buying property.
Nonetheless, if you already know your credit score but it is sitting at an undesirable number, consider any of these options: personal loans, credit cards, or making payments on time. Often, the reason for a low credit score is because a person has not been applying enough effort to the situation. As stated above, building a credit score takes a few years.
The minimum amount of credit that is required for a property loan is a score of 620 for most lenders. Sometimes banks make exceptions if your credit score falls just short of the baseline. However, it is better just to meet the requirements already. Before you take a meeting with a loan officer, you need to acquire documents that state your current credit score and any credit history. Your bank or some software applications allow you to create PDF files of your information that can be printed off. It is best to have as much history about your credit as possible. The more information you can give, the better your chances are at gaining a loan.
When you are upfront and honest about your financial history, loan officers feel more comfortable and may give you a raise on your loans face value. Do your best to connect with your loan officer, ask about their personal life, and create conversation topics that are more than finance talk. Likewise, if you have ever had a fall through in your credit history, loan officers may give you the chance to explain yourself. Remember never to lie. Be honest and own up to any past actions.
It can seem almost impossible to save money sometimes. Everyone experiences periods in their lives where bills seem to rack up and they struggle just to get by. If you are at a time in your life where you can’t save much, then you may consider holding off on the home buying process. First, you need to take a good long look at your personal accounts and investigate if you have any extra upcoming bills. You need to get all your own affairs in order so you can ensure that you can focus entirely on your new journey.
How much should you have in your savings account? This is a tough question. There is no baseline number for how much you should have saved. The amount depends on what you need your home to have. In most cases, it’s best to put 20% down, but if you can’t, many lenders will have the option of putting as low as 5% or 6%.
Just like everything else that pertains to finance, you are taking time to build your savings. You can’t just save every dime you make because you have other obligations, especially when it comes to monthly bills.
Tips and Tricks to Save Money
As stated before, sometimes it can seem impossible to save money. Here are some tips and tricks to help you achieve your goals.
First, create a spreadsheet of all your monthly bills and subtract them from your income. Next, consider how much you spend on things like groceries, food, and any other extra expenses and subtract them from the sum of your bills. By now, you should have a good starting point for a monthly budget.
The goal is to take away any unnecessary expenses like eating out or getting your nails done. This means you must be more considerate of your choices. The hardest aspect to overcome is an advertisement. If you can blind yourself to those new shoes you want but think you need, you are in good shape. You must overcome that inner person that tells you to spend your money frivolously. Be more mindful of your choices.
Another way to save money is by taking a small amount from each pay period and placing it in your savings account. Some people prefer to take cash out and store it in a safe at home. Real estate agents enjoy customers who can pay their down payment with cash.
Lastly, this is the most crucial step of all. You need to ensure that all your financial statements are up to date and try to include some new history. The more you have to offer about yourself, the better. For some people, this can be a scary step because they may have a rocky past. However, loan officers tend to look at your current situation and may only go back at least two years on your financial history.
Before taking a meeting with a loan officer, you need to be sure that your files and records are all organized. If you organize ahead of time, it is easier for them to thumb through and find what they need. Some loan agents might require you to bring information about your partner as well if you got married within the last five years. For instance, when you both apply for the loan, the officer may need to investigate both of your previous records.
After a few days, the loan officer should be able to figure up a loan that best suits your situation. If you have any stipulations to add to your mortgage, be sure to mention it at the first meeting.
Eventually, you and your partner can dig into some house searching. Make sure you are mindful of your financial choices at the beginning of your journey. Even after you have placed a down payment and moved in, the extra bill can cause some damage if you are not careful. It is okay to be very restrictive on your social life for a while. At least until everything starts to fall into place, it is common to experience some feelings of shock at first because everything happens so fast. Be sure to communicate any worries or concerns with your partner, loan officer, and real estate agent.