Hurst Lending and our AgsReward division are very involved with the Texas A&M community. As such, we hear from a lot of recent graduates who have questions about when and how they should prepare to buy a house. Generally speaking, as people get older, we tend to look to home ownership as a means to a space to call our own, provide stability for our children, and to build up wealth. However, for a whole host of reasons, it is not always feasible to own. In fact, there seems to be a trend amongst the younger generations of putting off home ownership until a later age than their parents did. There are a host of reasons behind this shift.
Obviously, bad credit alone can have a big effect on one’s ability to get approved for a mortgage (although there are some options, such as FHA loans, that can help). Additionally, if you’re having trouble saving up for a down payment, or are currently working on paying off other debt, the most responsible thing to do may be to keep renting. So then the question becomes, “What can I do in the meantime?” Well, the good news is that there is a lot you can do – in addition to saving for a down payment – to prepare for buying a home. Keep reading for some tips that you can start implementing today!
1. Start researching: The first step to preparing for home ownership is to get a gauge of what the housing market looks like in your desired area. A number of things can affect this, from the quality of the schools, to plans for development and expansion. Determine what is important to you in terms of square footage, number of bedrooms, and so on, while keeping in mind the average cost of a home in your desired area. Do you have, or are you planning on having kids? How is the neighborhood for children? These are all things to keep in mind as you begin to think about home ownership.
It’s also important to keep an eye on how the housing market is performing on a national level. Recently, interest rates have been rising due to the federal government’s efforts to combat inflation. Rising interest rates affect home ownership across the country. While they may make owning a home more difficult, interest rates alone are not an insurmountable obstacle and easily be accounted for with proper planning.
2. Make a budget: After doing a fair amount of preliminary research, start trying to formulate a budget that will reflect how you’ll be living after you have purchased a home. By taking into account what you learned about the market, you can simulate what your financial constraints will be when you are a proud homeowner. In addition to house payments, take into account the often forgotten costs like Private Mortgage Insurance, property taxes and more. It’s important to consider what your total monthly costs will be, not just the costs of your mortgage, when financially planning for home ownership.
3. Determine what you can afford: By living under a real budget, you can ensure that you are not surprised by the cost of homeownership. One of the best ways to ensure that you’re not caught off guard is to be realistic about what you can afford. It is not advisable to make assumptions on future income, like planning to receive a promotion, or returns on investment. Instead, take a hard look at your finances and income. Then, speak with a lender about what they think, as this is their specialty. There are many home affordability calculator tools available out there that are a great way to get a basic understanding of your financial reality.
4. Up your credit score: One of the biggest factors determining what kind of loans or mortgages you as a consumer can get, and the interest rates you’ll be offered, is your credit score. A credit score isn’t something that just happens to you, like a rainy day or getting rear-ended at a traffic light. With conscious thought and effort, you can improve your score and the loans you’ll be eligible for – but it takes time. So, it is never too early to start grooming that credit score. The moment you find yourself thinking “I’d kind of like to have a house of my own,”, request a free credit score from one of the three major providers – Equifax, TransUnion, and Experian – to know where you stand. From here, start improving your credit so that by the time you are seeking approval on a mortgage loan, you’ve got a credit score to be proud of.
5. Set goals and benchmarks: A lot of this may seem overwhelming – don’t let it deter you. All good things in life take time, and becoming a homeowner on solid financial footing is one of them. From the outset, try to create a rough timeline of when you would like to begin the process of getting preapproval for a mortgage. Working backwards can help to break things down into smaller chunks or tasks, and make it all more manageable. For example, try to make savings goals based upon how much you expect to need for a down payment, and set soft dates for when you may want to move in.
As you can see by the list above, there is a lot that you can do while renting to prepare for homeownership. It may seem like having the keys to your own house is far off in the future, but you can make sure progress is simpler and easier by preparing in advance. To learn more, reach out to Hurst Lending today!
To discuss this topic or other questions with Hurst Lending, contact Jay Hurst at firstname.lastname@example.org or 214 629 7909.
Jay Hurst is a Residential Mortgage Loan Originator (NMLS# 323441), real estate agent, and financial planner. He has founded multiple successful businesses in the mortgage lending space, and is dedicated to helping consumers avoid the red tape and limitations faced in working with larger lenders. Jay holds a BBA in Finance from Texas A&M University, Class of 2000.