If you think that you’re wasting money on rent, and you should instead do something to build your equity, you’re not the only one. 37 out of every 100 households in the United States are renters, and according to a research report, half considered purchasing a house.
Although many renters dream about becoming homeowners, usually a shortage of finances is a big problem for renters who want to switch the boat. Luckily, renters can now take steps to buy a home in the future with some help and proper planning. Below are a few steps you can use to plan your finances and leave the world of renting and get the pleasure of homeownership.
Save Cash for a Down Payment
The first thing you’ll want to start your journey towards homeownership is sourcing your down payment. Unless you are qualified for a 0% down payment on a VA loan, you will require at least some cash to pay as home’s down payment. It can be a challenge for you to save up money or bring in more cash, and it can be time-consuming as well. It’s crucial to get started at this point in your home journey so that you can save enough money by the time you’re ready to bid on your dream home.
Usually, individuals get their down payment from the traditional method – saving money over time. If you want to do it faster or gather your down payment amount in various other ways you can do the following things:
- Decrease your current spending
- Sell your unused/unnecessary stuff
- Get a part-time job after your regular 9 to 5.
Evaluate Your Credit Report
Lenders usually use your credit score to determine whether you’re a safe borrower or a risky one. So having a good credit score is the most crucial step towards homeownership. Perfecting your credit score can be valuable even if you think you have a perfect credit score.
You’ll have plenty of time to examine your credit report for errors if you get a report with your credit score early in the process. If there are any significant errors, you will have time to fix them. For FHA loans, 580 is the minimum credit score you’ll need to qualify, and for conventional loans, the minimum requirement is 620. If your credit score is lower than the requirements, you’ll have enough time to increase your score and qualify for a loan. When you’re checking your credit score, it’s called a “soft pull” and it won’t hurt your credit.
You can also get a better interest rate if you have a higher credit score. It’s always better to work on improving your credit score as soon as possible. The higher your credit score is, the more you will be able to save in time and money.
Stop Making Large Purchases
Buying a home is an expensive deal, so when you’re trying to get approved for a loan, demonstrate that you’re financially sound. This will help you in the eyes of lenders. Generally, lenders don’t want to see recent massive purchases from a borrower. Therefore it might help lenders to see you as a low-risk borrower if you delay going on a trip or purchasing a new TV.
Also, try to avoid starting new lines of credit in addition to stopping your big purchases. If you have multiple lines of credit, a lender may think that you don’t have the cash you say you do. Because of this, lenders might reject your loan application.
Determine What You Can Afford by Doing Calculations
You can always take the help of an affordability calculator to see how much you can easily afford before you go through the process of pre-qualification. You can also call Texas Trust Home Loans at (888) 971-1425, and with your income, monthly debt payments, and down payment information, you can see how much you can afford.
Also, you can use a rent vs. buy calculator on the internet to find out which option would be cheaper for you, purchasing or renting. This is commonly known as the breakeven horizon (the number of years where buying is more financially advantageous than renting. At the breakeven point, one can be indifferent between buying and renting). If you’re planning to stay in your house after passing the breakeven point, purchasing might be the best option for you. However, if you think that you might have to move, then renting is better.
Getting your Pre-Qualification
If you’re planning to buy, then getting pre-qualification now can help you having insight into whether you’re ready. You’ll know whether you are eligible for a loan and how much you can qualify for. It will reduce stress for you later on, and can help you find homes within your price range. A lender will consider your income, assets, debts, and other details during the process of pre-qualification to assess how much you can borrow. If your lender finds any red flags in your details, then you’ll know what rectifying steps you need to take to qualify for a mortgage loan. Getting a pre-qualification letter early on will also help you have time to fix any problems that might be present in your current financial situation.
Texas Trust Home Loans can provide you with a pre-qualification without doing a hard credit pull, so your credit won’t be hurt. When you’re ready to purchase, getting pre-qualified can help you make an offer and move quickly as soon as you settle on a home. Both sellers and agents will take you more seriously when you have a pre-qualification letter in your hand. It shows them that you’re not only fully prepared but organized as well to buy a home. When required, you’ll get approved for the amount necessary to acquire the house on which you’re making the offer.