With the new year upon us, 2020 could well be the year that sees you buying a new home. If you’re thinking that now is the time for you, it’s time to get serious. The new year is a great time to start changing those bad habits and start working towards your goal of homeownership in 2020.
The following 6 new year’s resolutions will keep you on track, and help make your dream become a reality.
Cut out the big purchases
Typically, if you want to buy a home, you’re going to need to start changing your spending habits. It’s time to start thinking about what you really need, and what you can save money on this year. Lavish vacations abroad, a new car, barely used season tickets for your favorite team, none of these are things you can’t exactly do without. So cut back on these, and other large purchases for a year while you work towards buying your own home.
Of course, you don’t need to stop spending altogether. Just reign it in a bit, swap out a vacation abroad for a more local, wallet-friendly adventure, for example. In doing so, you’ll find you have more cash to put aside for a down payment while reducing the amount of debt you’re taking on.
Reduce those other unnecessary expenses
Look after the pennies, and the dollars will look after themselves. It’s not just large purchases that make a difference, there are plenty of other ways to save cash. We all make countless small purchases over the course of the month, but when you add it all up, it soon becomes a hefty amount of dollars that could be put to better use.
For example, if you’re regularly eating out, you could be saving hundreds of dollars a month by cooking at home. Otherwise, cut back on alcohol, chocolate, smoking, and countless other vices — you don’t have to go cold turkey, but by cutting down a bit, you’ll find yourself saving a lot. Be a little stricter this year, and limit those smaller expenses.
Put spare cash aside for your down payment
The more cash you can put down for a down payment, the better, as you’ll enjoy lower interest rates and smaller mortgage payments in the future. If you can put down 20%, you’ll also avoid paying for private mortgage insurance (PMI), a cost that soon builds up.
It’s best to put your down payment savings into a secure account, and once the cash is in there, don’t touch it! Aim to put a monthly amount (ideally 20-30% of your total income), plus any other windfall cash that comes your way, such as inheritance, a pay rise, or gift. If you keep it up, you’ll be amazed at how quickly it grows.
Pay off outstanding debt
When applying for a mortgage, lenders will take a look at your credit score and report. What they’re most interested in is your debt to income ratio, though many other factors come into play as well. The more debt you have, the less appealing you are to a lender, and the more likely they are to reject your application. So, try to pay off as much debt as possible, and keep a healthy debt to income ratio, by paying off and closing excess lines of credit.
Applying for a mortgage can be a tricky process if you don’t know what you’re doing, but with a little help, it’s actually not too difficult. What trips most people up, is not having the required paperwork to hand when it’s needed. This causes delays and can mean the difference between you getting your dream home, or someone else snapping it up. So, get organized, and be sure you have the following documents in order:
- W-2 forms for the past 2 years
- At least 3 months of pay stubs (preferably signed by your employer)
- Income tax returns
- Rent information for the past 2 years
- Alimony or child support documents (if applicable)
- Bank statements (+retirement or investment account statements if applicable)
- Gift letter(s) (if applicable)
Learn about real estate
Finally, before diving in headfirst, try to educate yourself a little first. Learn the basics, such as exactly what is involved and required during the buying process, and the typical closing costs. Also, do more specific research regarding the different types of mortgage you may be eligible for, as well as any first-time home buyers programs in your area.
Stick to these resolutions, and your homeownership dreams can become a real possibility. Just be sure to do your research, and consult with professionals when the time to buy arrives. Happy new year, and good luck!