“Hi! Oh us? Nah, we’re just looking, but it’s a super cute place!” or “Honey, did you see the listing I sent you from Redfin? I like how their yard is super private, we should look for something like that some day…” Does this sound eerily similar to your own real estate-related conversations of 2013? Touring open houses every weekend “for fun” and obsessively trolling the Redfin app every second you have to spare (“As I wait for my mocha I’ll just take a quick peek — Hey look, that one just came on the market down the street from us! Wonder if that price is firm… Oh sorry, did you already call a grande mocha?”)? It’s totes casual and yet completely consuming, right? But like, it would be too scary if you actually had a savings goal and a timeline of when you’d like to achieve it, and like, a realtor who could guide you through the process and at the end of it all, you could be sitting pretty in an affordable home that’s all yours, no longer paying for someone else’s mortgage! Tooooo scary, right? Or maybe, it actually sounds a little… thrilling? I mean hey, you can always keep mindlessly scrolling through those real estate apps, no one’s gonna stop you!
But c’mon, let’s start 2014 off right! Get your nose out of the listings and into your personal finances. If you’ve been thinking about buying your first place next year, but keep getting tripped up on how to start the financial process, these 5 tips are for you.
Photo credit: www.ubersteward.com
- Work on your credit. If you haven’t already, pull that puppy! www.AnnualCreditReport.com is the official source for your free, annual credit report. Check to make sure that everything looks kosher. I’m sure you’ve heard the horror stories of people finding an error on their report and how long it look them to expunge it. Start early, be prepared and that way, you won’t have any surprises down the line. If your credit score is low due to late payments or a ton of debt, work out a plan to pay the debt down and/or get back on track with your payments. And hey, you’ve heard it before, but maybe this time you’ll listen! Cut up those extra credit cards! Stick with 1 or 2 that carry good rewards and the lowest APR.
- Cut back on superfluous spending & develop a savings plan. Easier said than done, but as you read this, you just know what your financial guilty pleasures are, amirite? Eating out more than you cook at home? Purse addiction? Or even something as insidious as your gas costs. Could you realistically carpool to work instead? If you want to save up for that down payment, you will likely need to get creative, make sacrifices and live lean for a year or two. It may not be fun, but if you’re set on owning a home soon, focus on your goal and commit this text response to memory: “Sorry, can’t do dinner out. Netflix and snacks instead?”
- Look into government-sponsored loans. If a 10-20% down payment just isn’t in the cards for you in the near future no matter how little sushi you’re now eating, FHA and VA loans are something you should consider. They have low down payment requirements and competitive terms and rates, and if your credit isn’t quite where it should be for a conventional loan, you’ll also find that FHA and VA loans are typically more accommodating.
- If possible, adjust withholding taxes. If you’re able to cut back on how much the government eats from your paycheck, it could help your cash flow in the short term. If every year you find yourself getting what seems like a large tax refund, you should think about decreasing how many personal allowances you currently claim. Try the IRS tax calculator to determine how much money you should have withheld from each paycheck. That extra money can go right into your savings.
- Contact a lender. As we discuss in our Q&A with 3 local lenders here, early is better when it comes to contacting a mortgage professional. They won’t bite, and furthermore, they will be happy to discuss your credit with you, give you tips like we shared above, and get into greater detail with you about how much house you can truly afford. No one wants to be house poor! Chances are, if things look good, you can qualify now, and if not, you will be on track to do so soon, with a helping hand from a lender.
Due diligence is the key to becoming a qualified, happy and stress-free homeowner! 2014 is totally gonna be your year. But you’ll have to find a new hobby once you finally lay off on that Redfin app! HGTV’s House Hunters, anyone? Take a swig any time someone says “backsplash!”
Main photo credit: Redfin