For many people, buying their own home is still the American dream. Yet, it remains out of reach for a lot of people, even though the housing affordability index in many areas of the country is as good as it's ever been. But if you're not prepared to buy a house, then the index doesn't mean a thing to you—except, perhaps, to create a painful sting and a constant reminder that you're missing out on a good opportunity to buy real estate at lower prices. For more on affordability, see my column, Housing Most Affordable: May be Time to Move from Renting to Owning.
That's advice that many experts are giving to those who are planning to stay in the same house for a few years. The cost of buying and relocating in a short period (a couple years) can make the concept of buying not appealing or cost effective. But if it's for the long term, owning can make perfect sense. But what if you're a first-time buyer or you haven't owned a home in a while, how do you prepare for what is often the largest purchase you'll ever make? Buying a home isn't that difficult but it does require you to make sure that you're in the right financial (and emotional) position to do it. How do you get there when so many other expenses often take precedence? Simple but not necessarily easy steps can help you position to transition from renter to home owner. It starts with getting familiar with your financial picture. If you are aware of what lenders are looking for before you apply for a loan, you'll have a greater chance of getting it and it'll be helpful when you meet with your real estate agent. No time will be wasted looking at homes that aren't in your price range. You will have a clear-cut idea of what you can afford and then you can confidently look for the most suitable home.
Take a keen look at your budget. This presumes that you have a budget. If not, develop one. You can use numerous software programs to create a budget; many are free, or you can even use a basic spreadsheet. If you're self-employed, take a look at free online bookkeeping software offered by Outright.com. It can help you track your income and expenses for your business allowing you to create a better recording system to help you save time and money. Review credit history. If you have no idea how your credit looks, then it's time to give it a review. When you take a look at your credit report, you will be able to see if there are errors or dings from late payments that are negatively affecting your credit score. This gives you a chance to dispute errors or work to clean up your credit before you apply for a home loan. When I reviewed my credit cards, I found a few hundred dollars that had been automatically billed to my credit card in erroneous subscription fees. Your credit card can file a dispute with the companies and credit the funds back to your account. It pays to double check; you just never know what you'll find.
Redistribute your money. Don't think of it as cutting back, but rather as moving your money from one place to another. For example, if you're spending $3 on a specialty coffee five days a week, think about making your java at home and putting that $15 a week into an account that is going to be used to purchase your home. It all adds up and most of the time, we don't realize how much money a dollar spent here or there can accumulate.
Another way to redistribute money is to examine your insurance policies and consider raising the deductibles. A lot of people want low deductibles in case of a loss or an accident, but you can actually save money and redistribute that money into an account that is set aside for purchasing your home. But some statistics show that the average person files a claim only once every 13 years, according to insurance broker, Michael Rice of Thomas Ward Insurance Group. So raising your deductible from, say, $500 to $1,000 can give you an annual premium savings of 10 to 15 percent. Rice also recommends paying your premium in full if the insurance company offers you a discount to do so; some offer a five percent or more deduction and you won't be charged administrative fees for periodic billing.
Keep your eye on the goal. Staying focused on the goal of buying a home will help you to remember that cutting costs now will allow you to have what you want in the long run. Our society is accustomed to instantaneous gratification so delaying the reward can be very challenging but well worth it. Owning your own home and, being able to purchase it while in a down market, is an exciting win-win.
Author: Phoebe Chongchua
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