Buying your dream home is a goal for many consumers. Whether you’re dreaming of a modern home with energy-efficient features or retirement home near the Caribbean Sea, buying a home comes with a sizeable price tag. While there are a few ways you can reduce the cost of buying a house, such as finding the best insurance policy and pitching in with DIY where you can, global house prices have been rising steadily for the last decade. According to Knight Frank’s Global House Price Index report, average prices increased 7.3 percent in the last 12 months. However, while the continued price rise may seem daunting, funding your dream home is still attainable. Whether you are a first-time homebuyer or a current homeowner with built-up equity, finances will play a large part in you buying your dream home – or whether you can afford to. The good news is that there is a long list of ways you can prepare for the road to financing your dream home. Even better, you can start on them today.
Get A Clear Estimate On How Much You Have To Spend
When buying a home, knowing your budget is critical. To calculate how much house you can afford, a mortgage finance calculator can help. Alternatively, creating a strict household budget can help you narrow down how much you can dedicate to mortgage payments each month. Don’t forget to account for the additional costs of buying your dream house, like closing costs, moving costs, and administrative construction costs (if you choose to build your dream home).
There is also the issue of a home deposit. While there is no uniform down payment percentage, home finance options like conventional loans can require as little as 3 percent down payment. If you are a veteran, you may be able to get a VA-backed loan with 0 percent down payment required. If you want more clarity, you can also speak to a mortgage advisor for help. The general rule is that your mortgage affordability should be 2 to 2.5 times your gross income.
Work On Your Credit History Consistently
Your credit history can significantly impact the final cost of your dream house by influencing the interest rates and payment terms your mortgage lender offers you. Industry experts recommend that potential homebuyers aim for 760 or more in their credit score if they want the best interest rates on their mortgage applications. The better your credit score is, the more you can save on interest costs, and the more affordable your dream home will be in terms of monthly repayments. According to The Home Loan Expert, if you have a blemished credit report, going through a pre-approval process will help you find a loan suited to your credit score and needs, or alternatively give you time to improve your score for better financing deals.
For instance, if you have a 650 credit score, you may be still meet the minimum lending requirements for some lenders, but it would also come with an average mortgage interest rate of 3.614 percent (based on a 30 year $250,000 mortgage application for a lender with credit scores between 640 and 659). Using the FICO calculator and the given information, the typical interest repaid is $159,889. However, someone with a credit score between 700 and 759 would pay a total of $119,470 in interest or $113 less each month. To keep your credit score healthy and improving, keep up with your payments and get regular access to your credit reports to notice any changes. Any one of the three national credit agencies will provide a free credit monitoring report annually, and it can be requested on AnnualCreditReport.com.
Come Up With A Plan To Boost Or Stabilize Your Income
If you want to boost your borrowing power before applying for a mortgage or home loan, you can either reduce your spending, pay down your debts, or improve your income. One way to do this in your current job is to ask your boss for a pay rise. Alternatively, you may want to look at other ways to boost your income, like starting your own business or side hustle. The higher your income is, the better your debt to income ratio is – a key metric that lenders consider when deciding how much to lend you.
Lastly, don’t forget to budget for an emergency fund. Buying or building your dream home can be expensive, and comes with lots of additional expenses. Thinking ahead to prepare your finances for the known and unknown means you are better prepared to deal with anything that comes your way.