The economy is revving up. You just got a new job, and your prospects for advancement are good. Your student loan is under control, and you might even be in a serious relationship. As icing on the cake, it’s beginning to look like you just might get a decent income tax cut from Uncle Sam for next year.
If you’re a millennial, or even if you’re not, 2018 just may be the year you buy a home, perhaps for the first time. If all this sounds like you, I’ve got a three step plan to make home-buying more than just a dream.
Yes, it will require some discipline, but that’s part of growing up. Welcome to the real world. Here we go:
STEP ONE: For most first-time home buyers, saving up enough for the down payment on a house is the biggest obstacle to becoming an owner instead of a renter.
With wise use of private mortgage insurance (usually called PMI) or with FHA loans, it is possible to get approved for a loan with as little as 3 percent down, but there are costs associated with these programs and they require bullet-proof credit.
Alternatively, if you can manage to scrape up another few thousand dollars for a down payment, you can save a substantial amount on various fees, both upfront and monthly, and still get qualified, even if your credit isn’t perfect.
In general, the larger your cash down payment, the easier it is to qualify for a home loan.
My suggestion for gathering yours is to automate your down payment savings. If you can get your employer to take a set amount out of your paycheck each payday, you won’t be tempted to spend it and you won’t miss it as much. If that won’t work, have your bank move a set amount from checking to a special savings account on a set date every month.
Your federal government found this out in 1943 when they invented income tax withholding. “If you never see it, you don’t miss it as much!” I swear it works.
STEP TWO: Know and understand your credit score, and work to improve it.
There are a number of completely free web services that will help you understand your credit score and your credit report in detail. My personal favorite is CreditKarma.com, but checkout bankrate.com and nerdwallet.com for alternatives.
Your three digit credit score is a reflection of your overall handling on your credit obligations during the past seven years. The higher your score, the lower your interest rate and the easier it is to get approved for the loan you seek.
Once you have examined your score and credit report in detail, you should get “pre-qualified” by a mortgage lender who will tell you the painful (or joyous) truth.
The good news is that your score is most heavily weighted toward your recent credit experiences, and you can begin improving your score right away. To learn much more about credit scores, get a free report at my website at Money99.com under RESOURCES.
STEP THREE: Now is the best time to practice living on a budget. Start today!
The reality is that the luxury of home ownership comes at a price. For you, that may mean giving up some of the things you are used to having, and only you can decide if the trade-off is worthwhile.
I laugh out loud every time I see someone driving down the street in a brand new $50,000 car. The truth is that the car represents another house that the driver can’t afford to buy.
Maybe you can give up a fancy car, or perhaps you can forego that new wardrobe of clothes. Maybe you are used to a nice vacation every years, and this year you can just stay home and have fun. Whatever it is, think about shrinking your expenditures and boosting your savings until you can make the leap to home ownership.
Living on less now will allow you to save a little more and pay down debts, which in turn will help your credit score. Are you beginning to see how all this works together? Sacrifice a little today and you’ll have a lot more tomorrow.
Department store genius Marshall Field said “Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” He should know. In today’s dollars, his fortune would be worth over $3 billion.
THE BOTTOM LINE: For most Americans, the best investment they ever make is in their own home. That is not only my opinion, it is my personal experience.
Atlanta native John Adams is an author, broadcaster and investor. He answers real estate questions on his call-in radio show on Money99.com every Saturday at 10 am. For more real estate information or to make a comment, visit www.money99.com.