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Top 10 Tips For Getting Ready For Home Ownership

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Home ownership is the American dream, but you need to be prepared. Read on for the top 10 tips for getting ready for home ownership.

  1. Improve your credit: Your credit score determines whether you will be approved for a loan and how much the loan will cost you in interest payments. The higher your score, the better off you are. You can improve the score by paying off debt (30 percent of the score is determined by credit utilization and lenders like to see it at under 30 percent) and by making all your payments on time (35 percent is determined by payment history). You should also refrain from opening new cards or taking on new loans in the two years prior to applying for your mortgage (lenders don't like to see a lot of inquiries as that may suggest you are readying for a spending spree)
  2. Save up a down payment: Lenders generally like you to put down at least 20 percent on the house. This protects the lender in case property values fall, since you won't end up owing more on the home than the home is worth. If you don't have a down payment, it can be harder to qualify for a loan and you may end up paying private mortgage insurance (PMI).
  3. Figure out your budget: Before you buy a house, you need to know how much you can afford. Determine your monthly income and expenses and see if there is anything left over to pay for home ownership.
  4. Live as if you own the house: If your mortgage payment is going to be $1000 per month but you only pay $500 a month in rent, it may seem as if it will be easy to come up with that extra $500. To be sure, though, you should live as if your payments are whatever your mortgage is equal to. So, set aside that extra $500 to practice having to make a $1000 payment each month, and see if you can really sustain that budget. You can put the extra money aside for your down payment or emergency fund.
  5. Build up an emergency fund: Owning a house comes with a lot of responsibility, including responsibility for problems the house may develop. If you move in and need a new roof a few years later, you may have a hard time coming up with the thousands of dollars required- unless you have an emergency fund. Your emergency fund will also protect you if you lose your job, since you can tap into it to pay mortgage payments and avoid foreclosure.
  6. Research the national market and mortgage rates: You should be abreast of what is going on in real estate before you buy. If property values are down, you may be able to pick up a bargain. Likewise, if interest rates are down, you can lock in your mortgage at a low rate. If the housing market is inflated however or mortgage interest rates are high, it may be a bad time to buy.
  7. Evaluate your long term goals: You should only buy a house if you are planning to live in it for at least 2 years, both for tax reasons (you are exempt from capital gains on the sale of a house only if you lived in it for 2 of the 5 years prior to sale) and because it will usually take you 2 years to recover the cost of getting the mortgage.
  8. Understand what goes into owning a house: Your utilities will probably be higher in a house than an apartment, and you will also have new responsibilities such as mowing a lawn and landscaping, that you may not have had in an apartment. Furthermore, you will also be financially responsible for repairs and need to be prepared.
  9. Get pre-approved for a mortgage: If you go to the bank before you begin looking for a house, your bank can tell you how much you can borrow. This will help you set your price range. It will also make the process faster once you find a house, since you will already have the mortgage approved and will just have to finalize the details.
  10. Find a realtor in your area: A realtor can help you find a home and guide you through the buying process.

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