Whether it’s that single-family house with a white picket fence and a peach tree or that spacious condominium unit close to your city’s business district, everyone has their dream home that they are working towards. Unfortunately, with rising real estate prices, steadily increasing inflation, and hourly wages barely moving, that property might feel further and further away from you. Luckily, with the right financial guidance, you can buy your dream home in no time.
Know All Your Mortgage Options
First-time home buyers have mortgage options available to them that can lessen the financial burden of buying a home, particularly the hefty 20 percent down payment that most conventional mortgage companies require. If it’s your first time buying a home, you may be eligible for an FHA loan, or Federal Housing Administration loan. With an FHA loan, you are only required to put 3.5 percent down payment on qualifying properties. As a prerequisite, FHA loan applicants must have a minimum credit score of 580. Those who have a credit score between 500 to 579 may qualify but incur a steeper 10 percent down payment.
Other options you have include VA and USDA loans. VA loans are only accessible to active-duty military personnel and veterans and typically require no down payment. A USDA loan, on the other hand, comes as a low-interest, no-money-down loan for home buyers looking to buy property in rural neighborhoods. To qualify for a USDA loan, you must have a credit score of 640 or higher.
Clear Your Debt
DTI, short for debt to income ratio, is a key metric that lenders look at when deciding whether or not you are creditworthy. DTI pertains to the amount of debt you pay every month in contrast with the net income you take home within that same time period. An ideal DTI ratio is 36 percent or less, and anything over that percentage is often considered a red flag by most lenders. Lower your debt by paying off all existing credit cards and loans.
In addition to lowering your debt, make attempts to increase your monthly income in order to improve your DTI ratio. Ask for a raise, downsize your lifestyle, and pick up a side hustle to increase your earnings. Consider sitting down and looking at your current finances and revising your monthly budget to reflect this new hefty goal of homeownership.
Consider Custom Built Homes
There are many advantages to choosing custom built homes over the traditional route of buying an existing property. For starters, you get full creative control over design choices, as long as they are structurally safe and physically possible. You can determine how many bedrooms and bathrooms, what type of kitchen arrangement, and what type of roofing you want the house to have.
Another noteworthy benefit is that you can make choices based on your specific budget. Custom home builders in South Carolina, or wherever you plan to build a house will work with you to make sure your home construction project stays within your budget ceiling without needing to compromise on safety or overall build quality.
Streamline Your Personal Finances
At the end of the day, saving for the home of your dreams is a process akin to saving for any other purchase, whether it’s a new phone or car. The only difference with saving for a home is the length of time it takes to hit your goal. Streamline your personal finances by automating your savings. For instance, decide how much money you want to save each month to reach the amount you need for your dream home’s down payment. If your goal is $100,000 for your home down payment, a goal of saving $2,500 each month gives you a timeline of just a little over three years.
Another way to improve your ability to save is to contact your bank and authorize an automatic monthly transfer of funds from your primary account into an individual savings account. Your bank will then automatically transfer X amount from account A to account B every month without you having to manually call in or put the order through their website.
Being able to afford the home of your dreams is all about sound financial management. Building good financial habits can help you increase your annual income, decrease costs and liabilities, and accelerate your savings rate without greatly impacting your quality of life.