In 1963, Martin Luther King, Jr. inspired a powerful movement with his famous โI Have a Dreamโ speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where we can grow and flourish.
If youโre dreaming of buying a home this year, start by connecting with a local real estate professional to understand what goes into the process. With a trusted advisor at your side, you can then begin to answer the questions below to set yourself up for homebuying success.
1. How Can I Better Understand the Process, and How Much Can I Afford?
The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
Keep in mind, before you start the process to purchase a home, youโll also need to apply for aย mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. Theyโll want to see how well youโve been able to minimize past debts, so make sure youโve been paying your student loans, credit cards, and car loans on time. If your financial situation has changed recently, be sure to discuss that with your lender as well. Most agents have loan officers they trust and will provide referrals for you.
According toย ConsumerReports.org:
โFinancial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.โ
2. How Much Do I Need for a Down Payment?
In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much youโll need for a down payment is another critical step. Thankfully, there are many differentย optionsย and resources in the market to potentially reduce the amount you may think you need to put down.
If youโre concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund.ย AmericaSaves.orgย says:
โOver time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.โ
Before you know it, youโll have enough for a down payment if youโre disciplined and thoughtful about your process.
3. Saving Takes Time: Practice Living on a Budget
As tempting as it is to pass the extra time you may be spending at home these days with a little retail therapy, putting that extra moneyย toward your down payment will help accelerate your path to homeownership. Itโs the little things that count, so start trying to live on a slightly tighter budget if you arenโt doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score.
Aย surveyย of millennial spending shows, โ68% reported that shelter in place orders helped them save for their down payment.โ Danielle Hale, Chief Economist at realtor.com, also notes:
“If there is any silver lining to the current economic landscape, it’s that mortgage rates are hanging around record lowsโฆAdditionally, shelter-in-place orders helped many who were fortunate enough to keep their jobs save for a down payment — one of the largest hurdles of buying a home. The combination of low rates and the opportunity to save is enabling many millennials to move up their home buying timeline.”
While you donโt need to cut all of the extras out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.
Bottom Line
If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. To determine the steps you should take to start the process, letโs connect today.
Content previously posted on Keeping Current Matters
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