Many people struggle with the question, “Should I rent or buy a house?” In 2016, more than 36% of the U.S. population were renting their home and among those under the age of 35, that percentage was significantly higher, with 65% renting. While you might enjoy the convenience of calling your landlord when any repairs are needed, you’re probably ready to build equity instead of losing money to rent every month. Purchasing your first home can be difficult and it will require a lot of preparation, but if you are motivated and disciplined enough to reach your goal, it can be done.
These tips can help make your transition into a homeowner more easily achievable.
Lower Your Debt
In order to buy a home, your money shouldn’t be tied up elsewhere. Lower your debt or attempt to go debt-free by creating a detailed budget aiming to make larger payments toward credit cards and auto loans. When you have minimal or no debt, you can save more money toward that down payment in addition to improving your credit score which in turn will get you a much better interest rate on a mortgage loan.
Improve Your Credit Score
Paying off debt in a timely manner will raise your credit score, but there are a few other things you can do to boost it as well. Continue to pay all of your bills on time and don’t open any new credit accounts unless absolutely necessary. Don’t close any unused credit accounts as it will decrease the total credit you have available which can hurt your score. Be sure to request your credit report from all three bureaus, Experian, TransUnion, and Equifax, and review them closely, disputing anything that is incorrect.
Create an Emergency Fund
Creating an emergency fund is important for renters, but particularly important for homeowners who face unexpected maintenance costs. Financial guru Dave Ramsey recommends saving three to six months’ worth of income so that you’ll be prepared for the unanticipated. Once you are debt-free, you don’t want to have to charge a credit card with a big purchase and start your debt pay-off journey again. If you were to lose your job, you need a safety net to pay regular bills and most importantly, your mortgage.
Save for a Down Payment
Lenders recommend saving at least 20% for a down payment before buying a home. If you’re budgeting for a $300,000 home that means saving $60,000. While it may seem like a lot of money, it is possible. If you are diligent with your budget, perhaps taking on a side hustle and selling any unwanted items around your home, you’re likely to find you reach your goal much faster. There are also programs for first time home buyers, veterans, and down payment assistance programs that can lower the down payment you need to make an offer.