1. Budget:

Not the most fun thing... even more so, you should track your expenses! If this is something you struggle with, you can use an app to help you. There are several available and I use Mint. With an app you can see where every dollar goes and it can be extremely helpful to identify what you can live without… coffee on the road, Netflix, dinner out on the town. Budgeting is critical because you want to learn to budget before you buy, not when you have a mortgage.

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I advise having a home-buying savings account separate from everything else. We all have savings accounts that we try not to pull from and inevitably do, so this way you can keep from dipping into it.  Every-time you add money, use that as more motivation :) Even if it is only $10 dollars a week, you have to start somewhere and the more you add the more motivated you will become. It certainly adds up when you commit to not pulling from this account.

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How much do I need for a down payment? Well that is a very difficult question for me to answer. Simply put; the more you have, the better off you are. Societal standards have changed and mortgages have followed. It is not easy having 20% of the home price in savings to put down, which would be a traditional conventional loan. Conventional loans now go as low as a 5% downpayment. I think that having $10,000 - $15,000 in savings is a great place to start. From there you will have momentum to save more or the ability to pick a loan that works for you. For example; an FHA loan in Maine is 3.5% down (excluding closing costs). If you had $10,000 in savings you could likely buy a home for under $200,000 and still cover your closing costs. Do I advise this? Not necessarily, because you should have a little wiggle room. Having an extra $5,000 would be great so that you can be covered for a few months of mortgage payments, utilities, etc. Being "house" poor is a real thing. Do your best to not spend every penny so you can move into your home not completely financially stressed. 

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2. Understand and Monitor Your Credit: 

If you can maintain a 740 rating and higher you will qualify for a great APR (annual percentage rate). Simply put, the higher the credit score, the lower the APR on your mortgage! A better credit score could be the difference in tens of thousands of dollars difference over the life of your mortgage. Seriously! BIG DIFFERENCE!

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Most lenders want to see at least a 580 score and feel more comfortable when you have a 640 and higher. (After all, they are lending you a lot of money). Let's say you come in at a 660, have some savings, and feel now is the time to buy. Well, your APR is not going to be great but the good news is that if you keep improving your credit you can always refinance a few years into owning the home and get a lower APR. Now this is only if the market APR is lower than your current rate. The market fluctuates constantly; rates in 2019 were in the 3% range and in the 2000's were in the mid 6% range.  

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If you are working on building your savings, it is a great time to try to improve your credit. Remember that a better credit score could give you a better rate on the largest loan of your life! It is worth at least 6 months of carefully working to improve your score.

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New to credit? Credit Karma is a great way to monitor/understand your credit and the best part is it will not hurt your credit. 

 

3. Get Pre-Approved:

Meet with at least two banks/lenders. Why? Because banks and mortgage lenders offer different loans from their portfolios; meaning that one bank will likely offer you a different loan than another bank in the same town. Shopping around can offer you better rates, customer service, and confidence. Remember, this is likely the biggest financial decision of your life. It only makes sense to shop around! You want to work with a pro that lays out all the details, answers ALL of your questions and most importantly someone that you communicate well with and trust. 

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Do not plan to take a mortgage at your max budget. Being "house poor" is a real thing. Even if you want a $300,000 home and can afford it, perhaps living in a $225,000 home for the next five years is a better option. That way you can get ahead, still save, and have some fun!

 

***** Be mindful of utilities and repairs outside of your mortgage payment. Have a nest egg if you can!

 

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