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Buying your first home can be daunting, especially with frequent talk about the volatile housing market, rising interest and mortgage rates. Adam Koos, a certified financial planner with Libertas Wealth Management, advises aspiring homeowners to relax and not get dissuaded by the negative buzz surrounding the market.
With careful planning, serious saving and realistic expectations, you can be well on your way to buying the house of your dreams.
If you don't have any credit, now's the time to work on building your score.
Open up a credit card (or two), for casual use and/or emergencies, and remember to pay your cards on time.
Chantay Bridges, a real estate specialist with Clear Choice Realty, notes that 'a high credit score can help qualify you for a mortgage and a low interest rate on your first home purchase.'
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'It's important for anyone saving for a home to know that any amount of oustanding debt they have is going to be counted against the amount of money they can borrow,' says Michael Keating, a certified financial planner and managing partner at InnerHarbor Advisors.
'Lenders will always review your debt ratio (your proportion of debt to assets),' he adds. 'If it's too high, you may not be approved or qualify for a loan.'
The National Association of Homebuilders says homeowners should have a debt ratio total that is less than 40 per cent of their monthly income.
That's about how much you'll need to spend on your home in the first year, and that's not even counting the sale price and down payment.
'First time homebuyers often forget, or don't realise, they will spend about $10,000 in transaction and move-in costs,' says Stuart Ritter, a financial planner at T. Rowe Price.
Look for FDIC member accounts with high yield rates on interest. Online banks offer a higher yield in comparison to the average big bank, Bridges says.
Make sure to get an account where you can keep your funds liquid, or easy to access. A traditional savings account could work, even with a low-interest rate, Keating says.
Even if you've created a plan to help you buy a home in, say, three years, you never know when your dream home will pop on the market.
For tips on choosing the right savings account, click here.
Lauren Prince, a certified financial planner at Prince Financial Advisory, suggests couples divide their expenses into three major categories: survival, liveable and comfortable.
Survival expenses cover the bare necessisities you need to get by: food, clothing, insurance and minimum credit card payments.
'If possible, live on one paycheck, even if there are two individuals in the same household,' says Bridges.
The second check could be put toward the $10,000 in transaction and move-in costs, the down payment, or any other fees you might encounter in the homebuying process.
'The advantages of working with a reputable counselor is that they will review your current and projected housing spending plan with you,' says Pamela Turner, an associate professor and extension housing specialist at the University of Georgia.
Georgia's Dream Ownership Homeownership Program, for example, provides $7,500 in down payment assistance for protectors (military, police, fire department), educators and health care employees.
A local professional will also be able to inform you about homebuyer programs, Turner says. While qualification depends on the program, most target first time buyers or those who have not owned a home in the past three years.
Check with the Department of Housing and Urban Development's local homebuying programs page to see if your state has anything up for grabs. Large cities and rural areas may also offer programs and loans.
Search HUD.gov to find approved housing counseling agencies in your area.
'I find the easiest way to save for a home is to review your spending plan and make deliberate choices to reduce specific expenses,' Turner says.
There's no magic formula to doing this, Keating, the financial planner, says: 'You need to spend less than you make and save what you don't spend. That's it.'
Sit down with your spouse or partner to determine the best way to approach your budget.
Simple moves, like packing your lunch every day or unplugging appliances when they're not in use can help reduce your bills. Likewise, seek out sales and coupons and curb the urge to impulse shop.