Homeownership is the American Dream. It’s a significant step towards building wealth, but people across the country are struggling to purchase a home because of limited homes for sale, prices are high, and the Fed is raising interest rates.
However, homeownership is not a lost dream – it’s a long-term investment. Here’s how you can achieve it:
- Gain speed with bank lenders.
Be prepared for the house-bidding process. Get pre-approved for a loan so you can quickly and effectively bid on your dream home.
- Fix financial flaws.
Clean up your credit and pay down your debt. If you address problems early, you are more likely to qualify for a better interest rate. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score.
When calculating your debt, consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income.
- Build your savings.
Down payments for first time homebuyers generally range between 6-7% on average (National Association of Realtors). However, offering a larger down payment helps you build equity faster, reduce monthly payments and eliminates the need for private mortgage insurance.
- Understand your local market.
Once you know what you’re looking for, research what similar homes have sold for in the past six months.
- Set a realistic budget and stick to it.
Consider what you absolutely need in a future home and where you can make concessions. Create a hypothetical budget for your new home. Factor in the cost of utilities, yard maintenance and other basic maintenance costs in addition to real estate taxes, mortgage insurance and possibly a home owner association fee.
Source: American Bankers Association