3 Tips to Make Buying a Home a Reality

Authors: Ashley Maready

Source: The Motley Fool

For many people, buying a home is not just a financial goal, but also a personal dream. November is Financial Literacy Month, so this is an especially great time to dig into what you need to do to make it happen. It's not a great market for buyers right now, as home prices are still elevated from the salad days of earlier in the COVID-19 pandemic. 

There's a lot buyers can't control, but luckily, there are a few things you can. Here are three tips to help you focus on your finances ahead of buying a house.

1. Get your credit in good shape

Your credit score helps to determine the interest rate you'll pay on your mortgage, as well as which lenders will approve you. You may be able to get a government-backed mortgage loan with a lower credit score.  

If you're ready to tackle your credit, start by getting a copy of your credit report. Look through it and make sure that all the accounts listed are yours and are accurate. If not, you can dispute entries with the credit bureaus. Credit report errors are quite common, and having them removed can boost your score.

Other ways to improve your credit include paying down debt and making your payments to your creditors on time every month.  

2. Save money for a down payment

The biggest hurdle to get over for many people who want to buy a home is the down payment. While it's a good idea to put down 20% if you can (because you'll spare yourself from having to pay for mortgage insurance and lessen the chances of ending up underwater on your loan), it isn't a strict requirement.

Consider lower-cost mortgage options if you're otherwise in good shape financially and can swing the cost of mortgage insurance. Note that for other government-backed mortgages with a low down payment required, there are upfront funding fees you'll be responsible for paying.

While you might be able to cut back your discretionary spending to save more for a down payment, you may come to resent the whole process if you no longer have any money to spend on things you enjoy. A better idea might be to get a side hustle and dedicate your income from that (minus taxes, of course) to home-buying expenses.

3. Shop around for a mortgage loan

If you've got a chunk of money saved and solid credit, you've put yourself in a good position to start vetting mortgage lenders. There are a ton out there, from your community credit union or hometown bank to online-only lenders. You can get pre-approved by more than one and compare what each offers in terms of loan types, amounts, and interest rates. When you find the best deal for you, you'll be ready to find the home of your dreams.

If you're hoping to become a homeowner sooner rather than later, keep the above tips in mind. Saving money, boosting your credit, and exploring all your options for mortgages are the best favors you can do for yourself to make buying a home a reality.

This article was written by Ashley Maready from The Motley Fool and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.