Hey there Dreamer,
What does your dream home look like? How much acreage do you want? Thought about the location at all? You should start researching now. Go to open houses and build a list of preferences for the inside and outside of your future home. Look at magazines, use my search tool here on my real estate page: https://makesignaturemoves.com/real-estate. The nest.me tool will send you properties matching the criteria you set. Planning makes the dream more attainable.
Based on my own personal road to homeownership, here are some of my recommendations for my clients who also want to maximize their homebuying power in the near future (*Note, while I am a licensed Real Estate Agent in DC and MD I am not a professional credit advisor or loan officer):
Credit “dos and don’ts”
1. Be consistent. Pay recurring expenses on time, consistently–but especially those who report to the credit bureaus. You need a credit score of at least 620 (some exceptions; speak to a loan officer) right now to qualify for a mortgage. Some lenders will allow it at 580, but it will likely raise your interest rate and they’ll add mortgage insurance to your monthly mortgage payment. You may qualify for downpayment assistance. Shop around for lenders; ask them what you need to do before you apply. Excessive inquiries can lower your score.
2. Check all three of your credit reports at www.annualcreditreport.com and dispute anything negative. EVERYTHING negative. Make them prove you owe it. If they can’t within 30 business days, it can come off. Please note that I am not a credit specialist; however, I’ve been researching topics to help my clients and I’ve found some info you can benefit from. Visit www.roadto750.net for a comprehensive approach to credit building/restoration.
Count your coins.
3. Be realistic about your budget! Write it down. Income–note the frequency and amount of incoming funds. Track recurring expenses and incidental expenses for three straight months for a good idea of what you actually have left to work with each month. Be mindful that homeownership is a lifestyle change. If you like dining out, shoe shopping, going to the bar, etc. you need to count that as expenses with everything else you pay. Then see if you can tone it down some for this life-changing thing you really want. If not, carry on and ditch the idea of buying a home.
Nobody I know seems to have enough money to do everything they want, and still pay the mortgage, health insurance, utilities, buy groceries and travel without a 2nd income. All my friends have made 2 and 3 times what I’ve ever made and they still complain about credit card bills. But if they used self-control, it would go way more smoothly. I could probably live comfortably on $60K/yr today, with side hustles that fund themselves while making me more money to invest. That’s strictly FTMOTDF (From the Mind of Tonya D Floyd) advice.
Mix it up.
4. Speaking of credit cards, don’t get every account they offer you. You need 3 types of credit activity on your reports to qualify for most large purchases. Get a low interest rate major Visa or Mastercard, a small revolving account like a department store or home improvement type card, and an installment account like a car or furniture payment you can pay easily.
Use your current property as collateral for a signature or home equity loan. Use that to fix it up. Pay it on time. Keep the balance on all credit cards below 10% usage, and never close an open account with a zero balance. Doing so limits what you have available and it looks like you’re spending a larger percentage of total credit. Read this: https://www.creditkarma.com/credit-cards/i/how-types-credit-affect-score/
It’s T H E I R S
5. Get straight with the IRS! File all missing returns from the last 3 years. If you owe taxes, start a repayment plan. See if you qualify for an offer in compromise. I don’t care what you heard about IRS not being an obligation; they will ruin your life. You may not have to pay OFF anybody as long as you’re paying ON everything properly. www.irs.gov. If you need professional assistance with audits, levies or liens, I’ve got a guy who’s dealt with tax issue for over 30 years. Ask me some questions.
6. Save whatever money you can. Don’t starve or sacrifice anything you’ll end up hating yourself for, but do something your homeowner self will thank you for. Downpayment help won’t be around forever. You’ll likely need to come up with 3-5% of the home’s purchase price at some point. 10-20% is better. Remember your downpayment helps to bring down the amount you’re borrowing, which decreases your monthly payment amount.
Do your research.
7. Educate yourself. Go to workshops and talk to housing counselors before you apply for a mortgage. Their job is to ensure you qualify for and keep your home. They’ll teach you about the types of expenses owning a home will incur beyond the mortgage and taxes.
8. Ask me some questions. I’m here to help. You can always play around with property prices and the payment calculator on my nest.me page.
So, pay your bills on time, monitor your own credit, establish good credit accounts of varied types, trim your extraneous spending, save some money, and learn about the tax benefits and added maintenance responsibilities of owning a home. Then call me so we can find you a good one (in DC or MD) and slowly fix it up the way you want it–unless you get a 203K loan, which includes rehab money😉. Then we can do it fast.
Look it up: “203(k) Rehab Mortgage Insurance | HUD.gov / U.S. Department of Housing and Urban Development (HUD)” https://www.hud.gov/program_offices/housing/sfh/203k/203k–df
I promise your first (or 2nd) home won’t come exactly like you want it. Imagine the possibilities…. I mean actually imagine what your future home will look and feel like. Then get going putting these tips to use.
Oh, and once you’ve closed on your new home, look at your life insurance policies to see if you need more coverage. Did you move because your family grew? You have more to protect now.
9. Send your agent some nice referrals.
Ta-ta for now….
TDF