One of the largest investments most people will ever make is purchasing a home. Home purchase is perceived as a steppingstone to personal wealth. However, this decision brings you a set of new responsibilities – tough ones that aren’t to be taken lightly. Living costs have become serious, and the skyrocketing real estate values have left the income behind.
Furthermore, buying a home means getting attached to many expenses. You may be able to qualify for a no-down payment loan, but undoubtedly you will still be putting some money down.
This doesn’t stop people from aiming to become renter to homeowner despite the challenges in the living costs. In fact, renting to own a house has become an option. The portion of your rent will go towards the down payment to purchase.
Before deciding from becoming a renter to homeowner, let us first check and see whether you are ready for the transition.
You Are Financially Stable
A mortgage will not be approved unless the underwriter has proven your stable and consistent income. But even if you can showcase financial documents with financial stability, you must only buy a house you can afford. Consider your income whether it can remain consistent for the foreseeable future.
You Have Saved For a Down Payment
Budget assessment is one of the first things to check in the list. May they be essential or non-essential things, you must know where you are spending your money.
Normally, every type of loan you choose requires minimum down payments. A minimum down payment of 3.5% to 10% for an FHA loan, and a minimum of 3% to 5% for a conventional home loan. Aside from the down payment, there are myriads of expenses for investment properties like the closing costs. An average of 2% to 5% of the sale price can be equal to the closing costs, which you may be responsible of paying too.
Saving for a down payment is tough, most especially when you’re the only one taking care of it. Consider rethinking how you manage your finances by getting rid of the unnecessary expenses, decluttering unused items and selling them, or taking extra shifts at work or a side gig. These can truly make a difference to better assess if you’re ready for the renter to homeowner transition!
Credit Score is in Good Shape
While having a perfect credit score is not required at all, a higher score is desired. Higher score helps you get qualified for a lower mortgage rate, thus saving you money in the long run.
Most of the lenders require minimum scores. For instance, a lending institution will set a minimum credit score of around 650 to get approved in a loan. To qualify for the most favorable rate, you might have to wait until you get a score of 700 or higher.
There are quite a few things to cross on the list if you want to improve your score. This includes paying your debts in credit cards and car loan. Also, it is ideal to stick to your credit card and avoid card surfing when saving for a down payment. Searchers will be registered against you and any thing can affect your credit score.
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Determine Level of Affordability
Various online calculators are available to help you determine how much you can afford. Even banks can provide you estimated calculations of how much you will need in order to save up. Your bank manager can also offer you saving accounts specifically for home buyers or new savers.
Avoid Huge Amount of Purchases
You might want to stop for a while and think if making a big purchase is a smart move. You could end up wasting an amount of money that should have been saved for making a down payment instead.
Again, rethinking about the necessary and unnecessary expenses can surprisingly save you a huge amount of money.
You Know Your Options
It’s worth knowing and understanding different types of mortgages before purchasing a home. With different home loans ranging from conventional to government programs; 15-year to 30-year terms; to adjustable fixed rates – all these contribute to a wise decision.
Renting An Apartments vs. Owning A Home
Renting An Apartment
- Short-term commitment
- Repairs and maintenance are minimal
- Smaller financial commitment
- You can save up more money for yourself
- Continuous and rising costs
- You cannot own it
- Heightened rules that need to be followed
- Lack of stability
Owning A Home
- Higher chances and confidence towards stability
- Advisable for people planning to start their own family
- Roots in the community
- Could be a bad investment
- Ongoing repairs and maintenance
- Chained to money/payments
- Leaving immediately is not an easy move
Learn Why Consolidating Debt Is Important
Renter to homeowner transition is not a one-size-fits-all decision. One mortgage may be advantageous for some you know, but not a suitable choice for you. Various mortgage programs for first-time home buyers are available in Alexdoesloans. Understand the pros and cons and explore your options. It’s not impossible to reach your goal of finally becoming a homeowner. It just takes a lot of effort, careful & smart planning, and hard work to lead you to it. As a first-time home buyer, avoid over-extending yourself and only buy within your means.
