There comes a time in most people’s lives where the idea of renting, moving apartments every handful of months or years, and constantly picking up roots and putting them back down in another part of the city gets tiring. For many, this singles a shift towards wanting to own your own home. But buying a home, particularly the first time, can be a major financial hurdle that not many people are ready to face. But with a little bit of prep work, you can get ready for a home purchase. Here are three crucial steps to prepare financially for homeownership
The first step to financially preparing yourself for homeownership is to save up a down payment for your home. A down payment is the amount of the home sale that you pay up front before your mortgage loan pays the rest of the home cost. Many people recommend a down payment of twenty percent to avoid overleveraging. But, if you are a first-time homeowner, and using an FHA loan to buy your property, you can put down as little as 3.5%, albeit with private mortgage insurance costs, until you hit 20% equity.
The next crucial step to financially preparing for homeownership is to strengthen your credit score. Your credit score will be one of the major determining factors lenders use to determine your loan size and your interest rate. The better your credit score, the lower your interest and higher loan amount you can get. Be wary of things that might hurt your credit when thinking about buying a home. Opening up new lines in a short period of time can hurt your credit score. If you are about to purchase a home, try to hold off on opening any new lines of credit for a while to boost your score.
The final step to financially preparing yourself for homeownership is determining how much house you can afford. Before you buy a house, you need to make sure that your current financial situation will leave you in a position to pay your mortgage. You should try to avoid spending more than half of your income after taxes on housing costs, and if possible, a third or less. If your estimated mortgage payment is in this range, you are good to go.
A home purchase is a massive financial undertaking. It takes preparation to get yourself ready. But don’t worry, getting ready financially for homeownership can be pretty straightforward. Just make sure you are following these three steps and you can be financially ready for homeownership in no time at all.
Buying the home is just the start! Check out this article on what to do right after you become a homeowner!