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March 19, 2024
Mortgage

The Road to Homeownership

 

For many individuals, one of the most satisfying and rewarding achievements in life is homeownership.

Purchasing a home leads to asset accumulation, and when compared to renting, homeownership provides greater flexibility in property decisions. Whether you’re dreaming of a place all your own, or you’re already on the path towards one, homeownership can be well within your reach. Below are strategies to help you secure your overall financial well-being on your journey towards your dream home.

 


 

Check and improve your credit

Your credit history is one of the most important factors considered in the approval process for a mortgage loan. You can review your history by requesting a free annual credit report from each of the three major credit bureaus, Experian, Equifax and TransUnion, at annualcreditreport.com. Be sure to review your report for accuracy. If any discrepancies or errors are discovered, contact the reporting bureau.

Credit scores are not usually included in these reports, and they may vary among the credit bureaus. Typically, the best scores are around 800 or higher; scores around 600 or lower are less than ideal. Poor credit can make it more difficult to secure financing.

Improving your credit score is one of the best ways to secure a loan for a house. As you take steps to improve your score, keep in mind actions that can influence your credit the most:

  • Always pay your debts on time.
  • Pay at least the minimum amount owed, and when you are able to, pay more.
  • Use credit wisely. Frequently pushing credit limits to the max or taking out too many loans can hurt you in the long run.
  • Don’t skip payments or go into default.

 

Manage your outstanding financial obligations

Take a look at the debts you already have. High-interest obligations can put you in a financial bind, as your debts can quickly balloon making it harder to pay them off, which can damage your credit even further. Paying off high-interest debt first should be your highest priority. Once you have identified any problematic debt, start developing a plan for paying it off as quickly as possible. Problematic debts may include:

  • Payday loan balances
  • High-interest auto loans on low-value vehicles
  • Credit cards with high rates

If you’re also carrying low-interest debt, like federal student loans for example, you’ll need to prioritize these payments, too. If you can, try paying more than you have to for high-interest obligations while meeting your requirements for low-interest loans.

As you reduce your debt, you can shift your focus toward meeting your goals, like saving for a down payment.

 

Build your savings

With less debt holding you back, you’ll be able to increase your savings at a faster pace. And, with thoughtful financial planning, you can stay on course. In order to be an adept saver, two financial strategies can prove helpful:

  • First, maintain an in-depth monthly budget. It’s hard to save money if you don’t keep track of how much you’re spending. Discretionary expenses can creep higher and higher if you’re not vigilant about how you actually want to use your money.
  • Second, build an emergency fund. Income disruptions and medical emergencies happen. While it might seem like it is slowing you down on achieving your goals of homeownership, it’s important to plan ahead.

 

Set a goal for your down payment and work towards it

Set a down payment goal based on your timeline and your housing needs. Then, work it into your monthly budget. Aim for a 20% down payment, as that can help forgo private mortgage insurance which could make your monthly mortgage payment more costly. Staying realistic and dedicated to your goals is key to make that dream home a reality.

 

Move forward with your financial house in order

The benefits of achieving homeownership can be part of your future. Even if you’re pursuing a different kind of financial future, these simple steps can help you on your journey:

  1. Check your credit for accuracy and report any errors.
  2. Take steps to improve or repair your credit.
  3. Make it your first priority to payoff or pay down high-interest debt.
  4. Make your payments on time; don’t skip any payments.
  5. Build a foundation for your savings.
  6. Set a target for your savings goal and include it in your budget.

While the path to homeownership can feel long and steep, prudent planning can help you reach your goals with confidence.

 

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