Want to buy a house? Here’s how to get your money right
Tips to get your house in order… so you can actually get your house.
Owning a home is typically a great investment, but it does (unfortunately) require quite a lot of resources. Conventional loans usually require a 20 percent downpayment, and you also want to have great credit so you can get a low interest rate on your loan. So what do you do if your financial game hasn’t been on point? With a little discipline and patience, you can get on the right track. Here’s how the experts from Knowable’s Buy Your First Home course say you can start saving for a downpayment and improving your credit score.
1. Move your money to a high-interest savings account.
Let the money you save work harder for you. Search around for banks that offer higher interest rates on savings accounts. Many brick-and-mortar banks offer very low interest rates in the realm of 0.1-.3%, so check out online banks that may offer better deals because they don’t have the overhead that brick-and-mortar banks do, advises certified financial planner Louis Barajas, author of “My Street Money: A Street-Level View of Managing Your Money From the Heart to the Bank.”
“They’re paying between 1.8 to 2.1 percent right now. No minimums, no penalties if you pull the money,” he says. Over the course of a few years, that can amount to thousands of dollars you earn just by leaving your money in the bank.
2. Automatically deposit money into your savings account.
After all, if you don’t have it in your checking account, you won’t spend it. “I have helped hundreds of people buy homes,” Barajas says. “Most of the time… we decide to put an automatic amount through direct deposit every single month and then they figure out how to live on the rest of the money that they’ve got.” Which brings us to…
3. Commit to making sacrifices. No, really.
If you’re quitting your morning latte but new vacation pics are always popping up on your ‘gram, you aren’t quite making the sacrifice you need to in order to save for a home. Take stock of what really isn’t a necessity and cut expenses relentlessly. Shifting your mindset might help make the transition easier.
“Maybe not going out to dinner so often is not a sacrifice, but it’s something to look forward to because you’re going to get into that house,” says Barajas.
If you really want to cut the biggest expense, find the cheapest rent available while you’re waiting to buy. That may mean moving back in with your parents if that’s an option for you, Barajas says. Just remember how badly you want to own your own home…
4. Use less than 10% of your available credit.
“With your actual mortgage, [a] 740 [credit score] is sort of golden,” says Liz Weston, certified financial planner and columnist for NerdWallet. “The lower you go below that 700 mark, the more likely you are to pay a higher interest rate.”
One of the fastest ways to improve your credit? Use only 10 percent of your available credit.
“If you’re using more than about 30 percent of your available credit, pay those things down. Figure out a way to either pay down the individual card, move the balances, move the amount of activity to other cards — the lower you get, the better. Getting it below 10 percent is best. So you’d only want to use a small amount of your available credit; that one thing is the fastest way that you can improve your score in a short period of time.”
To help reach this goal, start paying down your highest interest credit cards first since charges on those can quickly snowball.
This is just a taste of what you need to know to be a smart homebuyer. Check out Knowable’s Buy Your First Home course and learn from experts in all aspects of the homebuying process.
