This week, we consider five important areas that can help you determine your potential readiness for homeownership.
Hello, and welcome to a new year of weekly blog posts from the Minnesota Homeownership Center! As January progresses, we’ll be looking at Exploring Sustainable Homeownership as a New Year’s Resolution. This week, we consider five important areas that can help you determine your potential readiness for homeownership.
Credit Scores & Household Debt
When applying for a mortgage, one of the first things a lender will do is check your credit report and credit score. They’re looking to see how well you budget your money, and estimate the amount of money they might be able to loan to you. Your credit score gives your lender insight into how well you’ve managed to pay your bills in the past. Perfect credit is not needed to buy a home, and even credit scores that could disqualify your loan application can be improved over time with work. Keep in mind that you may qualify to borrow more than you’ll be able to comfortably manage. A Homeownership Advisor can help you analyze your monthly payments for different loan amounts and how they would fit into your current household budget. Advisors also can assist you in improving your credit score.
Household Income
Once you take on a mortgage, you need to be able to pay it each month! Lenders like to see that you have a stable income – one that hasn’t changed much in the past two or three years. If you’re thinking of making a career change or going back to school, which could mean spending more money each month or taking a cut in pay, you might want to put this off until you’re established in your new home and you have the chance to analyze what this would mean for your monthly budget. If you work in a field with potentially frequent layoffs, you might want to keep some additional savings easily accessible as well.
Household Savings
While you’ll want to have some savings for a down payment, don’t let the myth that you need to put 20 percent of the purchase price down deter you from considering homeownership. Many lenders offer loan products that require as little as 3.5 percent down. You also may be eligible for down payment or closing cost assistance. A Homeownership Advisor can help you navigate these products and programs, and also determine what savings you should still have available after purchase to deal with routine maintenance and replacement issues.
A Commitment to Staying
Homeownership is an investment that requires at least a few years to make sense. Selling a home costs money, and you want the investment you’ve made to have increased in value by the time you sell. Despite market fluctuations and even the housing downturn during the Great Recession, home values continue to rise over the longer term. So if you think your career or personal life might make you want to move sooner rather than later, you may be better off waiting to purchase your home.
A Mindset!
Are you ready to BE a homeowner?! Remember, there won’t be a landlord to take care of issues when they come up. You’ll need the know how to fix the little things yourself, or you’ll need to make room in your budget to call the plumber, exterminator, electrician or other professional when things go wrong. The fact is, eventually every major system and appliance in a home will need to be replaced someday – even if you were to purchase a brand new home. On the flip side, it’s also a fact that the median home price was just $7,354 in 1950! Homeownership is still the main way that people build and grow household wealth in our society.
Want to learn more about sustainable homeownership and how to pursue it successfully? Sign up for a Home Stretch class presented by a member of our nonprofit network of community-based neighborhood organizations.
Best of luck in the New Year!