prepare for a home purchase

The debate between renting vs. buying isn’t a black and white one. Different circumstances and vastly different housing markets can directly affect whether a home purchase is a logical choice for your needs. And while homeownership may seem like a far-distant possibility for some renters, according to the National Association of Realtors, the average first-time homeowner purchases their home before 46.

If you are currently renting, but plan to buy a home at some point in the future– be it near or far–ensure that you’re preparing now for your future purchase.

When a Home Purchase is Years Away:

When you’re just starting out as a first-time renter, homeownership is probably not on your mind. If you would like to purchase a home eventually, but it’s not on your radar at the moment, there are still some important things you can be doing to ensure that when the time comes nearer, you are much more prepared. First, remember that late payments strongly affect your credit score. It can take 7 years for a judgment to clear from your credit report, so what you’re doing now can alter your credit score for many years to come. That said, you definitely should care about your credit score as a renter since your credit score is often used as tenant screening criteria, it can influence your ability to get into your ideal apartment. To boost your credit score if you have low or poor credit, above all, be sure not to miss any payments. Make this easy on yourself by preventing any bills from getting out-of-hand and avoid maxing any credit cards. You should only be utilizing up to 30% of your available credit each month.

To keep your debt-to-income ratio down, but also get the benefits of making larger purchases on your card, you can periodically talk to your lender about extending your line of credit to easily help your ratio. As well as taking other important steps to build your credit while renting. An easy way to do this? Ask your landlord or property manager to look into reporting your rent payments to credit bureaus. This is probably your largest monthly expense, after all, and you want your responsible payment history to count towards your credit score.

When You’re Planning to Buy a Home in the Next Year or Two:

Now is the time amp up paying off any debts, and start saving! Your money down, debt-to-income ratio and overall credit score will help determine what kind of a home loan for which you may qualify–and how much you can borrow. Now is a good time to ensure you have diverse lines of credit. Further, establish credit by opening a credit card and paying off the balance every month. To keep your credit truly stellar, find out when your bank or credit entity reports to the credit bureaus each month–this way you can plan to pay off your cards before the balance is reported. This keeps your credit active, but your debt-to-income ratio very low; this is a recipe for a phenomenal credit score.

This is also a great time to ramp up your savings by cutting down on unnecessary expenses. Luxury purchases should be kept at a minimum to ensure that you are meeting your budgeting goals. To cut costs significantly, keep an eye on your rental market so you can ensure you’re getting the best deal for your dollar. If you have rented long-term from the same landlord or manager, consider negotiating lower rent or other amenities to limit your monthly expenses even further.

If Homeownership is in the Near Future:

Getting to know your local housing market yourself is key to this process, and finding the right realtor can be crucial as you get closer to making a purchase. It can be valuable to find out not only how much properties are going for locally, but also finding out what they would cost to rent. This can help you make an informed decision when attempting to make the transition to buying your first home. Buying has its advantages– the fixed costs associated with a home purchase may make you feel more at ease than the ever-steadily increasing rental market, but you don’t want to be stuck with a mortgage payment larger than its comparable rental cost. Depending on your local market and budget needs, this can also be a good time to consider house-hacking [a process where you purchase a multifamily property with the intent to live in one and rent the remaining living space(s)]. Since even FHA loans allow this, you could consider buying a duplex or larger property and go from renter to a first-time-landlord overnight!

While they are vital, your homeownership preparations should not just be financial, however. Homeownership comes with the responsibility of maintenance that you didn’t have to deal with as a renter. While you may have a few simple renter maintenance skills in your back pocket, they may not have prepared you for the responsibilities of owning your own home. Now is an excellent time to take advantage of any local handyman classes or clubs–it’s far better to learn those skills in advance than try to fumble through online instructions for the first time while in a high-stress situation. Local hardware stores like Home Depot often DIY workshops, these can be a great place to start.

Final Thoughts

Buying a home is an exciting, sometimes stressful, and always personal experience. Your circumstances and local market will all affect the reasons it may be better to rent for a season, but when it comes to finances, the more planning you can do now, the better. Whether buying a house is in the cards soon, or is simply a dream for the future, there are steps you can take right now to make that dream a reality sooner than you might think.

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