Although, many consider, owning a home, of one’s own, to be a primary component of the American Dream, far too often, we witness, many people, insufficiently, prepared, and/ or ready, to prepare, from a financial perspective! When one identifies, how home ownership, might serve their needs, and aspirations, and ensures, their choice is their personal best, in order to make certain, the process, from searching, to closing on a house, is as stress – free, as possible! Since, for most of us, the value of our home, represents our single – biggest, financial asset, wouldn’t it make sense, to proceed, wisely? With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 6 steps, which might help, in the process of preparing for as many of the financial considerations, involved, from the home buying step, to the home ownership, one.
1. Add no more debt/ credit: If you, truly, want to own a house, in the period, leading – up, to the search/ quest, be certain to avoid taking – on, any more debt, and, rather, attempt to, pay – down, whatever debts, you currently have. Your overall credit, is key, to whether you qualify for a mortgage, and, if you do, whether you will qualify, for the best possible rate! Evaluate you credit report, correct any errors, immediately, and address any weaknesses. Either do so, yourself, or hire, a professional, to best position you, in this area!
2. Pay down existing debt: Home financing/ mortgage lenders, use several ratios, to determine their decisions, as to whom, to loan funds to! One of these, significant factors, they consider, is the percentage of one’s overall debt, to their income. In order to prepare, use the period, leading up to your search, to pay down this debt!
3. Review Credit Report: Take your credit, and credit history, seriously! Before beginning, obtain a copy of your report, and examine it, carefully, for any errors, mistakes, or matters, which require an explanation. Either, personally, follow the process, for fixing these, or use, a professional, to ensure, you are best positioned. Examine your FICO score, know what is needed, and strive for improvement!
4. Build – up/ accumulate necessary funds, needed for downpayment: While, in most cases, it might require 20% downpayment, to qualify for a mortgage loan, there are, today, certain loans, which require less. However, when you put down less, you will have to pay more, monthly, and, it may be more challenging, to qualify! Take the time, between when you, make the decision, to search, and, when you find, the right house, for you, and your needs, to save as much, money, so you are ready, and prepared!
5. Prepare for contingencies/ 3 – 6 months reserves: When you purchase a house, there are, often, many unanticipated expenses, etc. It is wise, to prepare for contingencies, and create several financial reserves, including for, repairs, renovations, appliance repair, major components, and, unforeseeable employment interruptions. Three, to six months, worth of money, should be, put aside for these considerations!
6. Reserves: When you have all the reserves, you need, you significantly reduce your potential, unnecessary stresses, and strains!
Congratulations of making the decision to buy a house. Now, proceed, wisely!