4 Top Things Buyers Need To Do To Prepare Financially for Home Ownership
I see the full breadth of people. Those that have made good financial decisions since they were younger have an easier time buying a home and have the financial freedom to get what is best for their family. Those that have not, are saddled with debt and poor credit usually due to bad habits over a long period of time and have a more difficult time. In This rough market for buyers with interest rates and home prices so high, here are 4 things you can do to prepare for financial freedom and home ownership when the time is right!
1. Establish good credit and maintain good credit. How do you do this? The fastest way is to borrow and pay back monthly. The least complicated ways I know are to buy a car or to get a credit card. Use your credit card for all the necessities within your budget and then pay it off at the end of the month. This credit card when used as a debit card allows you to build good credit. Why is good credit important? The better your credit, the better your interest rate will be on your home and other loans. If you don't have a credit history that a lender can review then it will be very difficult to get a loan.
2. Stay or get out of Debt: If you are going to have debt, house/property debt is the best debt to have, as it's an asset that is, over time, increasing in value. Car debt is not bad…but your car starts to lose value after you drive it off the lot…but it's usually necessary, it's a tool you need to make your livelihood. School debt is sometimes necessary, as long as you are going to school for something that will allow you to pay back the loans and provide for yourself and your family. Credit Card Debt is NOT good debt. It is high interest and debilitating and if you have it, this is the first thing you need to get rid of to position yourself to own a home.
3. Start Building a fund for your down payment. Start putting a certain amount away and build that savings account. Hopefully you can put it in an account that fights inflation with a decent interest rate, possibly a CD. It could be as little as $50-$100 per month, and if you have more at the end of the month, I would save as much as I can afford! One avenue would be to put it in an account that is not as easily accessible with a debit card, so that you can't make a snap judgement and borrow from this nest egg. There are plenty of easy ways to make your savings a bit less accessible on a whim.
4. Have a budget. A budget is treating your personal finances like a business. It's you making sure that you, as an entity, are a money making entity, not a money losing entity! Businesses write all of their finances down, they study their profit and loss statement on a weekly basis. Why? Because they have to…if they don’t, they have no idea what they are (or are not) making. Budgets do not have to be complex. Its two columns of a spreadsheet. One has revenue in and the other has expenses. You look at what you spend on things, every month: gas, rent, food, utilities, recreation and you find out where all your money is going…and then, and here is the important part…force yourself to track your expenditures and where the money ACTUALLY goes…so, a budget is a plan, and you can treat yourself like a business by having your very own P&L statement. The bottom line is, if you write it down and plan it, you can achieve the goal, but if you just hope and wish to save $100 or more per month then you will always fail.
Bottom Line: Hope is Not a Method. Having a Plan and Carrying it out is. If you follow these four rules, you will be better off, whether or not you're in the market to buy a house right now.