Buying a house can seem like an overwhelming task. It’s easy to understand why -- a house is essentially an investment. The home buying process is extensive; you have to organize your finances, get pre-approved for loans, establish a budget, decide what neighborhoods you’d like to live in, and start your search for the perfect house. To alleviate the stress of buying a house, consider creating a five year plan to ensure that you stay on track and are prepared to make your home owning dreams a reality.
Five years can seem like a long time, but it’s a good idea to plan ahead. Five years will give you ample time to start a savings account dedicated to upfront payments on your future house.
Five year plans are specific to everybody’s personal situations, but you should address and plan for your down payment savings goal, increasing your credit score, establishing a budget, and determining the amenities you require in a house.
Saving for a down payment
When you buy a house, it is important to have an adequate amount of funds saved. Your down payment is the first of many upfront costs to buy a house. Even then, it is standard for home buyers to contribute a 20% down payment to leverage a good mortgage price. While it is important that you have the funds for the down payment, you still have to account for the cost of originator fees, service charges, and escrow payments.
The down payment is only one of many payments when it comes to buying a house. Plan your savings accordingly so you don’t run into unexpected expenses.
Fix your credit score
Your credit score determines the loans you qualify for, so it is imperative that you plan to monitor and actively work to improve your credit score. Some ways to improve your credit score include paying your bills on time, keeping balances low on your credit cards, and being mindful of the amount of credit cards you open.
A good credit score reassures lenders that you will be able to pay your loans in a timely manner, but that is not the only assessment that loan providers consider. Your debt-to-income (DTI) ratio also plays a factor in determining whether or not you get approved for an adequate loan. Your DTI lets lenders know the amount of debt you have compared to your income. Loan providers will factor in this measure when determining your ability to afford a mortgage and paying off your loans.
Establish a budget - and stick to it!
The down payment is a large amount of money and may seem like the most daunting part of buying a house, but establishing a budget and sticking to it is arguably the hardest part. When you are planning to save a large sum of money, it is wise to create a strict budget allocating funds for specific use (i.e. bills, gas, groceries, leisure).
The hardest part is actually sticking to the guidelines and restrictions you’ve set in order to allocate your disposable income into a savings account. That may mean cutting back on leisurely activities and unnecessary expenses. We’re creatures of habit, some may find it difficult to adjust to a more frugal lifestyle.
What can you live without?
Once you’ve taken care of your finances, it’s time to make a list of your requirements in a house. Doing so will help you narrow down your search and get a better idea of the price ranges and neighborhoods to look into. House hunting can be overwhelming; there are so many houses on the market, how do you decide which one is right for you?
It’s helpful to make a list of amenities you like and then speak to other trusted homeowners so you can determine what is absolutely necessary and what are things you can pass up on. Real estate agents are a valuable resource in helping you decide what amenities are necessary and worth the extra cost.
It may seem overwhelming, but owning a house is attainable once you break down the process into small stages. Five year plans are helpful in making sure you stay on track and
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