We all know the famous first words of Neil Armstrong as he stepped foot onto the moon.
“That’s one small step for (a) man, one giant leap for mankind.”
But did you know that Armstrong’s first step out onto the Moon wasn’t small at all?
In fact, Armstrong had landed the Lunar Module so gently on the surface of the Moon that the shock absorbers on the Lunar Module didn’t fully compress. So his first step out onto the Moon…was actually close to a 4 foot jump onto the lunar surface.
If you’re feeling like your first step into home ownership is more like a 4-foot jump you’re not alone. Many people feel that way.
But you don’t have to.
Recent studies by the National Association of Realtors show that over 80% of consumers believe buying a home is a good financial decision.
Here are 5 simple tips that will help make that first step a little easier.
Stability And Thinking Long Term
Even though over 80% of consumers believe owning a home is a sound financial decision it often doesn’t seem like the timing is right until you feel a sense of stability in your life.
Usually this feeling of stability comes from having a steady flow of income and a realization that the area you are living in is a place you could see yourself staying put for many years to come. That’s not hard to do here on The Space Coast.
When you’re renting, you’re only committing to one year at a time. So, if you see yourself switching careers or moving out of state then you may be better off just renting.
But when you own a home you should plan on staying longer. Statistics show that most home owners tend to stay in their home for an average of about 7 years. Of course, a lot can change in your life over 7 years so you want to make sure the homes you’re considering will be a good fit for many years.
If you’re thinking about having kids then make sure to check out the local school districts. Consider driving times to work. And find out all you can about what life is like in the neighborhoods you’re considering.
Compare Rental Payments To Mortgage Payments
Once you start feeling that sense of stability in your life a next logical step is to simply compare rental payments to mortgage payments. It’s fairly simple to calculate rental payments but when you calculate mortgage payments remember to include your mortgage principal, interest, taxes, homeowners insurance, repairs and possibly a condominium or homeowner’s association fee.
To determine what your principal and interest payment would be you can use a simple online mortgage calculator. At SearchSpaceCoastRealEstate.com a mortgage calculator is also built into each home listing page. Taxes and insurance are estimated for you and are included in the payment amount similar to how it would appear from your mortgage lender.
To budget for repairs a good rule of thumb is to calculate 1% of your home’s annual value divided by 12. A $300,000 home, for example, would be $3,000 per year or $250 per month. You won’t need that much every month for routine repairs but budgeting that into your monthly payment estimate will help you realistically save for larger repairs down the road like a new roof, exterior paint or an HVAC system.
It may seem like there are a lot of costs in that total house payment but even with all that it still often ends up being less per month to own than it does to rent particularly when mortgage interest rates are low.
And of course there are also tax benefits to owning a home and long-term wealth building benefits as well. Over time your home will gradually increase in value and at the same time you are gradually paying off the loan.
A Survey of Consumer Finances conducted by the Federal Reserve showed that the median net worth for homeowners was 30 times higher than the median net worth of non-homeowners.
Saving For A Down Payment
Now that you’ve calculated what a realistic house payment would be and compared it to the cost of renting it’s time to start thinking about your down payment.
There are several reasons to save up as much as you can for a down payment.
First, a larger down payment looks great on a purchase offer particularly when you’re not the only one submitting an offer. When a home seller sees that you have a sizeable down payment they will feel more confident that you can actually purchase the home and may choose your offer over another that has a smaller down payment and seems less qualified.
Also, putting a larger amount down on your home purchase means your mortgage loan amount will be smaller and that means your monthly payments will be smaller too. A smaller monthly house payment will give you more freedom to spend on other things or to save for future needs such as college funds, weddings or vacations.
And finally, a larger down payment will help you qualify for a mortgage loan. There are loan programs available with down payments as little as 3.5%, and even some with 0% down, but if you’re able to put 20% down that will help you get the best mortgage at the lowest rate.
Knowing Your Credit Score and Keeping It In Check
While you’re saving for a down payment you can get to know your credit score and work on boosting it if you need to.
Your credit score will also play a big role in getting the best mortgage at the lowest rate. Typically, the higher your credit score is, the lower your interest rate will be. Lower interest rate means a lower monthly payment. And it also means you’ll save thousands of dollars in interest over time.
You can go to AnnualCreditReport.com and request your free credit report. It really is free! You’ll be able to pull a credit report from each of the three main credit bureau’s Experian, Equifax, and TransUnion.
You’ll only be able to pull each report for free once per year. But you can space them out to keep tabs on your credit.
Pull a report from just one of the bureaus to begin with. Then pull your report from one of the other’s 4 months later. And finally pull the last report 4 months after that from the third bureau.
You’ll be able to monitor changes to your credit for free all year long!
For a small fee you can also get your credit score if you wish although your lender will be able to provide you that at no charge.
If your credit score is lower than about 650 you’ll want to take some action to improve it. Work towards paying off any small debts you have and keep your credit card balances as low as you can.
If your credit score is 650 or higher you should be able to qualify for a mortgage. Improving your score beyond 650 will get you better mortgage options with a lower interest rate.
Get Educated And Seek Professional Help
While you’re building up your savings and beefing up your credit score keep learning all you can about the home buying process.
A good Realtor and a top producing lender will be great sources of information and assistance during this time.
You can schedule a free consultation with a mortgage lender and they’ll be able to give you an accurate idea of how much you can borrow and what will fit within your budget.
The best Realtors will have the heart of a teacher and be happy to educate you and even hold your hand throughout the process if necessary.
At times you may feel confused or overwhelmed and that’s why finding a lender and a Realtor you can trust is so important. They’ll point you in the right direction and guide you along the journey.
Take That First Small Step And Have Fun
The home buying process should be a fun experience for you and your family.
With your newly acquired knowledge and a good team to back you up you’ll be just like Neil Armstrong and ready to take that first small step…even if it feels like a 4-foot jump.
Still not sure? Click here to schedule a free strategy call.