The decision to buy a home is among the most important choices you’ll ever make. Most everyone grows up thinking they’re going to be homeowners one day, but not many seriously consider how they’ll afford their ideal home until it’s too late.
Three steps for saving up.
Saving up for a major expense isn’t easy and takes years of dedication. Follow these three steps to set yourself on the right track when preparing to buy a home.
1. Strengthen your credit score.
When looking to buy a home, unless you have enough money to buy it outright, you’ll have to qualify for a mortgage. Mortgages are determined by your credit score. There are some basics to managing your credit score that take time to grasp, and it takes even longer before you’ll see these actions make a difference. A few rules of thumb include:
- Make all of your payments on time.
- Use 30% or less of your total credit at a time.
- Limit the amount of credit cards you use to about two and pay off the rest quickly.
The most important thing to remember about managing credit is to always pay your monthly minimum. When you go to buy your home, you want your credit score to be as close to 850 as possible, and 700 is considered to be a good score.
2. Grow your savings account.
You don’t want your money to be at risk while saving up to buy a home. Once you can estimate how much a down payment on the home will be and how long you must save up for that expense, storing it in a savings account is your safest option.
Savings accounts collect interest and give you a return on your money. The more money you keep in it, the higher your earnings will be over time.
For help setting a goal on how much you should save in your savings account, use a home affordability calculator. The most important factors are for your mortgage to not exceed more than 28% of your gross monthly income, and for all of your combined debt to not exceed 40% of your gross monthly income.
3. Have your life in order.
As a final philosophical step, consider why you want to buy a home. Are you ready to settle down?
It’s always a good time to start saving, but it takes emotional maturity to purchase and care for a piece of property. If you’re looking to buy a home in order to flip it, consider the very different financial decisions that come with a fixer-upper and the high risk of getting stuck with it for the foreseeable future.
With such a major investment, make sure that you have a support system of friends and family who can help you in case of an emergency. Select Home Warranty is also here for you to help protect your home’s most important appliances and systems when the time comes.