Homeownership is one of most people’s major milestones in terms of success for many reasons, but it can also be a really stressful time which www.betterhelp.com can help with. Whatever your personal reasons, it’s crucial to create a well-planned strategy to ensure your stability in the beginning and over time. We can look at the recent past and see how the housing crisis and recession were devastating across the country, and that’s the last thing you want.
Although repossession is the worst-case scenario, you can still avoid other major debt traps that less prepared people are likely to face. Read these tips to broaden your perspective avoid making regrettable decisions on your journey to your first home, and start planning ahead if you are considering selling it.
Your First House Should be For You to Live In
Flipping houses is alluring; as is the idea of buying a home in a trending city with the intention of living in it and renting it out or selling it in 10 or 20 years. However, your residence is not an asset. It is a liability. Firstly, it is not liquid in the same sense as most other assets like stocks and bonds. You will still have to find a new house to rent or buy and move into before you sell the house, so even if the value increases, you have to subtract the costs of your next residence. This just the tip of the iceberg; flipping houses is not really a sexy investment and you should wait until you have a lot of money already before going this route. Check out the ultimate guide to flipping houses by Landcentury.com.
Do not buy a house right after having a child, and avoid having a child right after buying a house
The American dream: finding a perfect house and immediately having a baby and probably a puppy. It sounds great, but it can lead to an avalanche of unexpected consequences. Unforeseen repairs around the house, unexpected child raising costs (babysitting, doctor visits, pre-school, and getting the college fund started early) can cause your projected budget to wear thin fast. – and the last thing you want to do is seek more loans in this situation.
If you are really set on accomplishing both of these in the same timeframe, then look for the most affordable areas that will allow you to put a lot more money down and keep your monthly payments smaller.
Look for Supplemental Income
In the digital age, there are so many ways to make more money with just a phone, laptop, and Internet connection. If you have a hobby, there are ways to make money from it through a website or turning it into a service. You can also consider Uber or Postmates for extra cash while you aren’t at your main job. This way, you can more easily pay your weekly and monthly expenses while using your other check to save or chip away at your debt.
Your down payment should be at least 20% of the property value
If you do some searching online, you will get different opinions on how much money you should put down on your house. To be safe, go for at least 20% of the total value. This will help you get a better mortgage rate as well as eliminate the need to pay for private mortgage insurance.
Make Your Debt-to-Income Ratio as Low as Possible
Your debt-to-income ratio (DTI) is the strongest indicator to lenders about how reliable you are with making your payments on time. Take your pre-tax income and divide it by all of your monthly loan repayments. The lower this percentage, the better. Generally, 43% is the highest number that will get you a qualified mortgage. That is still rather high, considering that is close to half of your monthly income, and this is before taxes.
Use your DTI as an indicator of which debts you need to address immediately so you can set yourself up for a better mortgage rate and be in as great shape as possible to pay off your loans while saving income at the same time.
Don’t Borrow the Max Amount
Chances are you will be approved for a higher loan amount than you need for your true expenses. This can be tempting and you may start to think about other ways to use the excess loan money. This is likely to cause more trouble than benefits for you, and you will still pay interest on it eventually. Borrow only what you need.
It is always better to avoid accruing more debt when you don’t need it than having to stress about paying off more than you can handle in the future. The term ‘an ounce of prevention is better than a pound of the cure” applies to your finances as well.
Emergency Savings
Piggybacking off the last point, you need to think in terms of prevention as much as possible. We can’t predict the future, but you can set ourselves up for a fast recovery from major issues when they come up by designating a substantial amount to savings for all of your income. The longer you can discipline yourself to save this without touching it, the more it will help you when you really need it. Frankly, you should be doing this right now whether you are planning to buy a house soon or not.
You might also want to consider whether shared ownership is for you.
