Getting Ready for the Next Big Move - Steps to Becoming a Homeowner

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Written by Rebecca Strickland: 

 

Buying your first home can be very exciting, overwhelming, scary and a big step in the right direction for you and your families’ future.  There are several steps that you can take before you get started in the home buying process to make things easier. 

Becoming a homeowner is the biggest financial commitment that you will make. The more you know the better off you will be. As a mother of two children, I have embedded in my kids that they should start saving. From birthday money to money made from babysitting and dog walking I have always encouraged my kids to sit aside 20%. There is nothing wrong with spending hard earned money, but you must also save in case emergencies come up. When looking to purchase a home you will want to have money saved for a down payment and for closing costs. Once you become a homeowner, you will want to have money set aside in case your roof leaks or a water heater breaks. A good rule of thumb when it comes to saving money is to always try to have at least one month of bills set aside just in case you get sick and are unable to work or you lose your job. One thing to ask yourself before you start to think about buying a home is, “Do I pay my bills before I play?” Most mortgage loans are set up to be paid off over 30 years, so this is why I say buying a home is the biggest financial commitment you will make. You must be able to be responsible enough to pay your bills first, save second and play third.
 
If you are struggling right now to pay your bills or living paycheck to paycheck there are some things you can try to do to help yourself out and get back on the right track. First, ask yourself what can you cut out? Do you stop daily or weekly to get coffee on the way to work? Do you eat out for lunch on a regular basis? Do you order pizza every Friday night? These little things add up. For example, if you order pizza every Friday night and spend $20 that adds up to almost $87 a month or $1,040 a year! When you go to the grocery try to buy what you need not extras. Look at your monthly cable bill-is there anything that you can cut out or do you go to the movies often? Everyone deserves to have fun, but if you are living paycheck to paycheck, you need to step back and analyze what things you can cut out or do differently. If you go to the movies often, try renting movies instead and making your popcorn at home, it can easily save you $30 just by staying home! The last thing to look at is credit cards. It is too easy to charge something that you want, but if you are not able to pay off your credit cards monthly then you are paying 8-25% every month in interest. When it comes to saving money it is as easy as asking yourself, “Can I live without it?!” 
 
When it comes to seeking help with your finances you should always use professionals that have certifications in what they do. When you go to a bank to open up a checking account, ask to meet with a personal banker, so they can help you pick the right checking or savings account. Depending on how much money you keep in your accounts you could have the opportunity to make interest on your money! Once you establish good working relationships with your banker or CPA you can ask them to recommend other professionals to meet your needs. If you are looking for someone to do your mortgage loan or help you find a home, ask your friends and family who they have used for these services and if they would recommend them. You want to make sure that you are working with a seasoned Realtor and mortgage loan officer. You will need to rely on their knowledge to guide you in the right direction to becoming a homeowner. For example, when I qualify someone to buy a home one of the first things I ask is how much are you paying in rent currently? Are you comfortable with your rent payment? 9 times out of 10 you are going to qualify for MORE house payment then you really want! When you are pre-approved for a home loan, we look at your GROSS income (before taxes) and we only count the debt that shows on your credit report against you. That means that we don’t factor in how much your monthly utilities will be, daycare, gas, groceries, etc. This is why you need to have a good grasp on what your monthly bills are before you look into buying a home. 
 
One of the most important things you need to have when you are ready to buy a home is a checking and/or a savings account. You need a checking account to show that you deposit your paychecks and then pay your bills out of the account. Having a savings account shows that you are able to set extra money aside that you don’t pay your bills out of. If you are able to put $20/ week in a savings account that will add up to $1,040 a year! When you buy a home it is good to have a down payment. Most lenders or banks like to see that you have at least 3.5% to put down, but there are 100% loans out there too. They normally have higher interest rates, closing costs and require private mortgage insurance. Having a checking account is also a good way to get your budget set. You can look at your monthly bank statements and see clearly how much you are depositing per month versus how much you are spending per month. You can also add up all of the “extras” that you do and it will be a good eye opener for you to see just how much you spend on eating out, going to movies, etc. Savings accounts are also good to have because they allow you to have money to fall back on in case of emergencies. If you have money saved, you won’t have to use credit cards.
 
If you are ready to start looking for a home there are some things that you will need to have to give to your loan officer. You must prove your income by providing 30 days of current paystubs with year to date income. The bank or lender will also want to see your last 2 years w-2’s or tax returns if you are self-employed. You will need to provide 2 months of current bank statements for checking and/or savings. Most banks want to see that you are able to have money left over every month after paying your bills. When it comes to buying your first home the MOST important thing you can do is make sure you work with a seasoned loan officer. You will need their guidance and advise to help make your first home a GREAT and EXCITING experience!! 
 
There are a lot of steps to take on the path to homeownership, but in the end they are all well worth it. Owning your own home gives you a sense of pride. It helps you to build up your credit rating. It helps you on your taxes because mortgage interest in tax deductible. Once you are ready to move into your 2nd home and so on, you will have equity from your current home that you can use as down payment. It gives you the freedom to paint, landscape or do any improvements that you want because it is YOUR home!! 
 
I hope that this column helps you to get on the right track to owning a home. You have already taken the first step by getting in contact with the United Way and by reading this article. This will be one of the most rewarding and exciting things that you do. Good luck!
 
 
Rebecca Strickland is a loan officer in Lexington, KY.  
NMLS #3379
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