Three Things To Unlock Your First Home
Did you know that it could be cheaper to buy than to rent your home? That’s right! Even if you have never owned real estate before, there are officially sanctioned hacks that are designed to support home ownership in the United Sates, even after all of the highly publicized problems of the last decade.
If your plan is to buy your first home, and you don’t have enough cash to make a down payment, what do you do? Well, it is reasonably straightforward. If you have a mediocre credit score and steady employment you are half way to owning your home.
A Home Ownership Plan For Everyone
Let’s run through the basics how you can get there; it boils down to three inter-related things: Your debt, your income, and finding the down payment. We are assuming here that you are not a servicemember or veteran of the United States Military or Coast Guard, who might be able to purchase a home without any cash using a VA loan.
But you will probably still be able to qualify for an FHA-backed loan; this is another government–backed loan program designed to get working Americans into home ownership with a low minimum down payment of 3.5 percent and you can add any buyer’s closing costs to your loan.
Debt To Income Ratio And Saving For Your Down Payment
If you are starting at zero savings and mediocre credit score, you are going to do three things to achieve your first home purchase: Reduce your debt, increase your income and save up a deposit. Lenders will carefully analyze your debt-to-income or DTI ratio, and they will prefer to see less debt and more income.
You will need to come up with 3.5% of the purchase price of your new home. Let’s start with a ballpark figure for the value of a starter home or condominiums you can expect. For argument’s sake, let’s make it exactly $150,000, which means that you will have to produce a deposit of $5,250 to close the deal on your new home. If you express this as weekly savings, it is $101 a week to save in a year or $67.31 per week over eighteen months.
Helpful Deposit Raising Tips
Here are some tips about things to do to save up for your deposit.
Create a budget – This will enable you to see what you have to earn and what you can do to reduce your debt. Of course, you will have to be disciplined enough to live within the budget so make sure that it is realistic.
Pay off loans – Reducing debt will have a positive impact on your credit score and reduce the numerator of your DTI ratio.
Change jobs sooner rather than later – If you want to buy a home in a year to eighteen months, change employment for a higher income as soon as possible because lenders will want to see job stability before they approve your loan application.
Keep your job – Do all the overtime you can get.
Keep your present job or don’t – But get a second part-time job as well as your full-time job.
Of course, housing prices in your region may vary, but this just makes the point that it will take you some work to get to your home-owning destination. Given the motivation, steady employment, and good credit, homeownership is within reach of most people within the next year to eighteen months. So, perhaps it is time to start getting excited about the possibilities.