3 Tips to Help You Afford Your First Home
1. Save, Save, Save
This one might seem obvious, but it can be difficult to put aside savings, especially if you’re paying rent. Here are a few ways to save in small ways that make a big difference.
- Cut back on eating out.
- Shop prices for internet, auto and home insurance, and other variable costs to make sure you’re getting the best price.
- Establish and hold yourself to a monthly budget for fun expenses.
While you don’t have to have an entire 20% down payment to put down, it’s a good idea to try to get there! Whatever you have before it comes time to move forward with the purchase, you’ll be better off!
2. Work on Your Credit
Got a credit card? Make sure to make your payments on time! Have a car payment? Make sure you make that on time, too! Debt that you’re paying down on time isn’t likely to hurt you. However, now is not the time to run out and make any big purchases, especially if you’d have to finance the purchase.
If you don’t have any credit or ways to build your credit, you might want to consider getting a credit card with a moderate limit to help you build that history and trust. It’s important to time this well. Start this process a few months before you start the home buying process.
3. Understand Interest Rates
All of the jargon when it comes to getting a loan can be confusing, and one of the most confusing but important things to know BEFORE you say yes to a loan is your interest rate. The interest is basically paying back the loan company the trust they put in you. After all, they loaned out a huge amount. They need to be able to make some money while they wait for you to pay back the entire value of the loan.
When you make your house payment, you’ll pay a certain amount of that to your principal (the actual loan amount) and some of that to interest (amount you’re paying to the loan company every month).
Interest rates aren’t all the same, either. They can vary in percentage but they can also vary in conditions. There are variable and fixed interest rates when it comes to getting a home. These are exactly what they sound like. Fixed is an interest rate that stays the same throughout the life of the loan. A variable interest rate is a rate that changes throughout the life of the loan. Because homes are usually a long-term investment, variable interest rates are pretty rare. However, if you’re planning on selling your home fairly quickly, a variable might be better for you.
This isn’t everything to know about interest rates, but a professional loan officer can be your guide to understanding interest rates and more!