Can You Afford Your Dream Home?

Written by Posted On Friday, 20 July 2018 08:42
Can You Afford Your Dream Home? Habitations Robert

Everybody’s familiar with that dream: the one that longs for walls to call your own.

Yearning for a dream home often begins at an early age here in America, given the emphasis our society places on the household. For me, it began the moment I graduated from college and developed a passion for a sustainable lifestyle.

Unfortunately, not everyone can walk onto their dream property and claim it. It’s important to cultivate real estate dreams—just like Lucy from Charlie Brown—but life does require that we tackle a few practical items first.

I was lucky enough to become a landowner and homeowner in my mid-twenties. It took a lot of financial savvy (in addition to a great helping of belief!).

Here are some (humble) home purchase finance tips you can keep in mind when determining whether or not your dream home is feasible.

Get Intimate with Your Credit

Your credit score is not determinative of your capacity to purchase a home, but it certainly plays a significant role. Now is the time to understand how credit scores work, and where yours sits on the scale.

A lot of people face poor credit history or history that is simply not extensive enough for lenders’ linking. Others may be stuck in the rut of “average” credit, thereby facing “average” rates and steeper private mortgage insurance. Some people may be forced to purchase such insurance if their credit is deemed “at risk.”

If you haven’t done so recently, request a free copy of your credit report. Every consumer is entitled to one free copy a year, and many credit card companies give users free access to credit scores themselves.

You may also wish to request a credit report from all three participating credit bureaus: Experian, Transunion, and Equifax. Sometimes scores will vary between the three, as each assesses creditworthiness slightly differently.

Identify ways to boost your credit, if necessary. Quick credit fixes are sometimes difficult, but keeping your credit utilization low, being mindful of installment loan payments, and modifying your debt-to-income ratio can help. If you find an issue with your credit report—and these are more common than most people realize—file an error report with the credit union in question.

One issue I faced as a young prospective homeowner was not my credit score itself—I had excellent credit—but rather the length of my credit history. Borrowers who have been borrowers for longer, quite simply, have better odds of securing low-risk rates.

For this reason, I required a co-signer. Others may simply have to wait to build the credit history required for solid rates. I’ll discuss this later on in this post.

Understand the Home Purchase Process

The world of mortgages, down payments, insurance, and more is often nebulous for first-time homebuyers. Understanding the home purchase process can help determine if your dream home is in the near future (or the far future).

Here at Realty Times, there are plenty of consumer resources with regard to understanding the home purchase process. I also recommend this guide to how mortgages work.

Prospective buyers may also wish to work with local agents, consultants, and lenders who can offer insight into every step of a home purchase. I found local individuals to be my best resource when navigating my land purchase.

This is especially important when it comes to lenders. If you are confident that you will have to finance your home purchase (most buyers do), consult several lenders to compare rates, down payment requirements, and other fees. This can be eye-opening in itself, as different lenders will offer different terms.

Identify Feasible Co-Signers

If you face poor credit history or sub-par credit scores, identify whether or not it would be possible to sign for your mortgage with a viable co-signer. In most cases, co-signers are parents, spouses, or other relatives.

I took this route in order to secure the highest possible rates for my home loan. It certainly can be tricky asking a potential co-signer for assistance, as co-signing assigns loan responsibility to that party should you fail to make payments on time.

For this reason, be clear about your expectations and capacity to make loan payments on time when navigating these conversations.

Visualize Your Income Trajectory

No property should be purchased without a keen glance to the future first. Visualize your income trajectory and crunch some solid numbers to assess mortgage feasibility.

Be honest when doing so. Try to round down rather than up. This is especially important if you are self-employed or face unstable employment.

If possible, identify backup income sources, including assets, investments, savings, and additional employment. Try not to force the numbers here. If they simply don’t add up, now may not be the time for that dream home.

However, it may be valuable to compare cost of living trajectories. Calculate what your monthly expenditures would look like with a mortgage (rather than rent, for example); compare this with your current expenditures. In some cases, you may find that paying a mortgage is more cost-effective than paying rent, or at least comparable. This was certainly the case in my situation.

Communicate with Friends and Family Members

Don’t exclude friends and family in your deliberation process. Communicate your desires with loved ones and be open to their advice. I relied a lot on my father for advice, given the fact that he has been purchasing, remodeling, and selling homes his entire life.

Such conversations may open up other alternatives and means of securing a home purchase, such as co-signing opportunities, family property, or even monetary gifts.

Weigh Alternatives

Every home purchase hinges on a variety of factors, and homeownership itself can offer several benefits that renting or couch-surfing may not. First-time homebuyers, for example, may be entitled to certain tax deductions (although tax code changes are on the horizon).

I’ve already discussed the possibility of a home purchase being a more financially sound decision than long-term renting, particularly if your month’s rent is equivalent to a mortgage payment.

It’s also possible to apply for mortgages that aren’t conventional, such as FHA loans backed by the US Federal Housing Administration. These loans often dramatically reduce or eliminate down payments, provided homebuyers are of a certain income bracket and purchasing a home in a rural area.

Be sure to weigh all of your alternatives to determine if your dream home is viable, and always consult experts when necessary.

If you’ve determined that your dream home is still farther along the horizon than you anticipated, take heart. It is possible to accelerate your savings by choosing a mobile lifestyle for a while, as I did. More time can also mean a higher credit score, which can generate better rates.It may also mean waiting for the absolutely perfect home. Sometimes, patience really does pay off! 

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Kate King

Kate King is a freelance writer, editor, and blogger. 

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