The housing market is a shambles right now. Even before inflation started rising at a record rate, people were in dire need of a means of affording a mortgage. Or rather, affording the deposit for a mortgage. That is the real hurdle here. A lot of mortgages actually cost significantly less than rent, but the up-front cost is stalling people from buying their own homes.
It’s a sorry state of affairs to be in, but we’re here to help you navigate it. Take a look at our guide to buying a house in the current economic climate.
Prepping For Buying A New Home
Buying a house takes a lot more prep work than you might imagine. You have to have a lot of ducks in a row, and you might not even think about these ducks until you start to get the urge for your own place and find you can’t get it. Even if you are thinking that buying a house is a long way away for you, you will need to make moves to make it a reality now.
You also need to decide if buying a house is the right property for you. There are plenty of other options to consider when it comes to buying a new home. Property investment companies often have useful guides on buying property whether you want a family home to live in or an apartment to rent out as a source of income. Check out the helpful information on rw-invest.com to help you get started with choosing the right investment for you.
Wipe Your Debt
The first thing any lender is going to look at is your debt-to-income ratio. They want to know how much of your monthly income is going to cover your minimum monthly debt repayments. Your debt is your finance’s first priority, and a mortgage is a loan. A lender wants to know that your first financial priority is your mortgage.
You want to get rid of that debt as soon as possible. Not only will it hinder your ability to save, but you will be gaining interest in it. The interest can trap you in a cycle of only paying off what the interest amount comes to with minimum monthly contributions, never having made a dent on the debt itself. It might sound counter-intuitive, but the best way to get rid of it is to pay more than the minimum amount. Suffer through a few hard months of putting as much into the debt as possible and come out the other side with a clear history. You can make it easier by collecting all your debt in a balance transfer card to eliminate the interesting aspect.
Improve Your Credit Score
Another benefit of wiping your debt is that it will improve your credit score. Debt bogs down a credit score, which your lender will look at to establish if you are a safe person to loan to. Mainly it indicates that you will reliably pay your bills in full and on time every month. Why? Because that’s what you have to do to improve your credit score.
There are other ways to improve your credit score too. If your credit history is low, you’ll have to build it up with payments to something like a new car or a credit card. But keep your credit usage low, under 50%, which lenders will approve of.
Take a look at your credit report and report any errors you might see that are bringing down your score and avoid opening up new accounts to keep your credit history intact.
Now it comes to the nitty-gritty of it. You’re going to need a deposit, and at the very least you’ll need 10% of the home you’re looking at. To put that in perspective, with the average house prices in America hovering around $453,000 in 2021, that means you’ll need $45,300.
It’s time to look at the budget. Rethink every bill that comes out on the first of the month. Get really comfortable with comparison websites to make sure you’re getting the best deal on everything from energy to broadband. Keep only what you need to live on and put the rest away.
From there, make a plan for saving. If you have something you can look at and say you are working towards, and see its progress, you’re more likely to stick to it, and not dip into your savings any time you see something you want in the days before payday. Put down the newest PS5 game. You’ve got a house to save for.
This is where things get so much harder: you might need to move back home. Obviously, this isn’t a desirable option, and it might not even be an option for a lot of people, but if you have a good relationship with your parents, and you can strike a deal, like working for your parents in some capacity around your job, you can sleep amongst your high school trophies and posters for a year or two with what would be your rent money going to your mortgage deposit.
Think About Every Option
Think about every option, including who you are sharing with. As long as your co-borrower knows what they are getting into, that their name is on the property and they are responsible for its upkeep and repayments, a co-borrower can be almost anyone: a friend, a family member, a partner, or a spouse. That casts a wide net.
You should also show any and all of your income. A lot of different things account for income, so make sure to show everything coming into your account. Sure, you’ve got your full-time salary, but have you any side businesses, dividends from investments, social security, child support, or alimony? Put it all on the table to convince your lender that you have backups.
As horrifying as those words might sound, you will also skip the Private Mortgage Insurance that comes added to mortgage repayments by doubling your deposit to 20%. This will make repayments easier down the line.
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