New Year’s resolutions are an annual rite of passage for a lot of folks — but if 2020 snuck up on you and you weren’t ready to commit, we have some suggestions for resolutions that will ultimately help you achieve your dream of owning a home a little sooner.
Why not just make “buy a home” your whole resolution? Because that’s a recipe for failure. While you need to keep your end goal in mind, the trick to making successful New Year’s resolutions is to give yourself a set of stepping stones along the path to the results you want to see. Having specific, actionable goals you can meet and use to measure your forward progress keeps you from getting discouraged and abandoning your plans.
If you’re ready to start thinking about owning your own home, here are the resolutions that can help:
Stop Spending and Start Saving
This one sounds simple — but if you’ve never bought a home before, you may be shocked by the number of “satellite” costs you’re going to have. Many would-be homebuyers realize that they need to put aside 5%, 10% or even 20% of their potential home’s price to secure a loan — but they’re woefully unprepared for expenses like appraisal fees, home inspections, pest inspections, earnest money, and moving costs. Plus, once you finally buy a home, there may be renovation costs, decorating expenses, landscaping and other expenditures that are necessary to realize your dream.
So how do you make this resolution a reality? Again, break the bigger goal down into little ones:
- Track your monthly expenses in January. Use a journal or an app and write down absolutely everything you spend. This can help you identify where your money seems to go when you aren’t looking — and figure out ways to plug the drain. Be honest with yourself about what you can live without.
- Start the cutbacks in February. Maybe you identified three monthly streaming subscriptions you don’t really use and realized that you’re spending $10 every workday on lunch, snacks, and drinks. You know you can do better, and you stand to save maybe $250 a month just by getting your podcasts from the library and packing your meals. Every day that you manage to cut your expenses, take whatever you would have spent and put it aside. Having that little pile of loot can be a visual reminder of just how good you’re doing and keep you on track.
- Open a savings account in March. Take what you’ve saved and put it away in a brand new savings account that’s earmarked for your home. Using an account that you leave unconnected from your other accounts can help you avoid the temptation to occasionally dip into the funds.
As the year winds on, find other ways to save money and then keep adding what you would have spent to your special savings. For example, if you spend $5 on thrift-store jeans instead of spending $100 on brand new ones, put the remaining $95 in your account.
It’s also important to avoid going into any additional debt right now. Your ability to get a home loan is partially based on your debt-to-income ratio, so it’s wiser to put off any major purchases whenever possible. For example, if that old car of yours is still running fine, don’t trade it in on a new model just yet.
Check Your Credit and Change It for the Better
Your credit score determines just how much a bank is willing to risk on a home loan for you, so you really do need to know what’s in those reports from Equifax, Experian, and TransUnion. CreditKarma and other companies make it easy to peek at your actual credit score, and they offer tips and tools on how to nudge those numbers a little higher.
Here are some specific, actionable steps you should take:
- Run all three major credit reports for you and your spouse and find out your credit score.
- Look for any errors in the record that may be negatively affecting your credit.
- File disputes on those suspected errors with all three credit reporting companies.
- Once the disputes are resolved, run your reports again so that you can rest assured that the record has been corrected.
Boosting your credit will be a little easier as you cut down on your spending because credit utilization is also a big part of your score.
Get Pre-Qualified and Look at Lending Options
Don’t wait until you’ve spotted the house of your dreams for sale to go looking for a loan. By then, it’s too late to effectively get the best deals. It also doesn’t give you time to investigate government-backed loans (FHA, VA, USDA, and HARP) that make loans to people with your particular needs or limitations.
When should you start? It’s honestly not too early to make an appointment with your friendly loan officer. Take your tax returns, pay stubs and credit records with you, so that you can have a frank discussion about what it will take to qualify for a conventional loan. Knowing this now can inform your goal-setting strategy for the rest of the year. Make another appointment to apply for preapproval about three months before you hope to buy.
If you follow this guide, it won’t be long before you’re ready to work with a knowledgeable real estate agent to get the home you’ve always wanted.