Hurst Lending and our AgsReward division are very involved with the Texas A&M community. As such we hear from a lot of recent graduates who have questions about when and how they should prepare to buy a house. Generally speaking, as people get older, we tend to look to home ownership as a means to a space to call our own, provide stability for our children, and to build up wealth. However, for a whole host of reasons, it is not always feasible to own. Obviously, bad credit alone can have a big effect on one’s ability to get approved for a mortgage (although there are some options, such as FHA loans, that can help). Additionally, if you’re having trouble saving up for a down payment, or are currently working on paying off other debt, the most responsible thing to do may be to keep renting. So then the question becomes, “What can I do in the meantime?” Well, the good news is that there is a lot you can do – in addition to saving for a down payment – to prepare for you for buying a home. Keep reading for some tips that you can start implementing today!
1. Start researching: The first step to preparing for home ownership is to get a gauge of what the housing market looks like in your desired area. A number of things can affect this, from the quality of the schools, to plans for development and expansion. Determine what is important to you in terms of square footage, number of bedrooms, and so on, while keeping in mind the average cost of a home in your desired area. Do you have, or are you planning on having kids? How is the neighborhood for children? These are all things to keep in mind as you begin to think about home ownership.
2. Make a budget: After doing a fair amount of preliminary research, start trying to formulate a budget that will reflect how you’ll be living when you do own your home. By taking into account what you learned about the market, you can simulate what your financial constraints will be when you are a proud homeowner. In addition to house payments, take into the often forgot about costs like Private Mortgage Insurance
3. Determine what you can afford: By living under a real budget, you can ensure that you are not surprised by the cost of homeownership. One of the best ways to ensure that you’re not caught off guard is to be realistic about what you can afford. It is not advisable to make assumptions on future income, like planning to receive a promotion, or returns on investment. Instead, take a hard look at your finances and income. Then, speak with a lender about what they think, as this is their specialty. Another great tool is this Home Affordability Calculator (link to http://www.realtor.com/mortgage/tools/affordability-calculator/), which crunches the numbers to give you an idea of what you can afford in a given zip code.
4. Up your credit score: One of the biggest factors determining what kind of loans or mortgages you as a consumer can get, and the interest rates you’ll be offered, is your credit score. A credit score isn’t something that just happens to you, like a rainy day or getting rear-ended at a traffic light. With conscious thought and effort, you can improve your score and the loans you’ll be eligible for – but it takes time. So, it is never too early to start grooming that credit score. The moment you find yourself thinking “I’d kind of like to have a house of my own,”, request a free credit score from one of the three major providers – Equifax, TransUnion, and Experian – to know where you stand. From here, start improving your credit so that by the time you are seeking approval on a mortgage loan, you’ve got a credit score to be proud of. For tips on how to improve your credit score, visit our blog post on the topic here! [link to credit score improvement blog post]
5. Set goals and benchmarks: A lot of this may seem overwhelming – don’t let it deter you. All good things in life take time, and becoming a homeowner on solid financial footing is one of them. From the outset, try to create a rough timeline of when you would like to begin the process of getting preapproval for a mortgage. Working backwards can help to break things down into smaller chunks or tasks, and make it all more manageable. For example, try to make savings goals based upon how much you expect to need for a down payment, and set soft dates for when you may want to move in.
As you can see by the list above, there is a lot that you can do while renting to prepare for homeownership. It may seem like having the keys to your own house is far off in the future, but you can make sure process is simpler and easier by preparing in advance.