What To Do In 2020 To Prepare For Homeownership
If you’re planning on buying your first home in 2020, these home buyer resolutions will help you purchase like a seasoned pro with minimal stress or surprises along the way.
Resolution #1: Save for a Down Payment and Closing Costs
Most loan programs require cash for a down payment and closing costs. A recent study found that almost half of millennial renters planning a first home purchase hadn’t begun to save for these expenses. But consider this: even a low 3% down payment loan such as ones offered by Frannie Mae or Freddie Mac are going to require a $9,000 down payment on a $300,000 home.
Most people would need about six months or more to hit that savings goal. Our tips? Reduce your living expenses as much as possible. Consider cutting back on meals out and entertainment or expensive cable plans. Perhaps getting a roommate or moving in with mom can help cut back on your monthly kick-out. Some future homeowners can ask family members to help put a dent in down payment expenses. If that’s an option, start having conversations with close family members to gauge if they plan to help. Whatever you do, make sure to put extra savings into a “no-touch” account.
Resolution #2: Reduce your Debt
A debt-to-income ratio is an important factor that lenders use when approving loans. To find your debt-to-income ratio, add all of your monthly payments and divide by your monthly income. The average debt-to-income ratio for mortgage approval is about 36%. You can improve this by paying off debt, starting with smallest balances and working your way up. You may also think about increasing income by taking a side gig or asking your current employer for a raise.
Resolution #3: Improve Your Credit Rating
Your credit score and history will ultimately determine the success or failure of your mortgage application. Most lenders look for a score of 580 or higher to qualify future homeowners. Since scores change monthly, monitoring is key! Stay informed by signing up for accounts with the three major credit bureaus: TransUnion, Experian, and Equifax. Make sure the information is accurate, and don’t hesitate to dispute report errors that can take months to resolve. And remember: paying off credit cards, negotiating student loans and managing other debt will go a long way in raising your score.
Resolution #4: Decide Where You Want to Live
You’re not just buying a house, you’re buying a lifestyle. When searching for new neighborhoods, you’ll want to factor in both affordability today and return on investment for the future. Local realtors can educate you on a neighborhood's current average home prices and its price appreciation potential. If you have children or are planning a family, schools will be something you definitely want to investigate. Think hard about how the move will impact your commute to work and other frequent trips. Also, spend a few days exploring neighborhoods; check out local shops and eat at nearby restaurants to help you decide if you can picture yourself becoming a resident.
Resolution #5: Find an awesome agent
These are competitive times for first-time buyers. Shoppers may get frustrated by lack of inventory and the challenge of finding their dream home. Working with a Realtor can open doors to off-market properties and give you a clear advantage. An experienced Realtor can also help you submit a winning offer and navigate scenarios that involve multiple offers. Finding someone to trust can be tricky. Do your research and interview potential agents to find one who makes you feel comfortable.
Preparation is key when planning a first home purchase. There are lots of things to consider and a realtor can help!