Spring time is approaching quickly. Colder winter weather will leave and in will come a little warmer weather. Another thing that spring brings is more people looking to become home buyers. I am one of those people. I live in a suburb of San Diego, California, and in the near future, I want to become a homeowner, so what steps should I take?
The first thing I need to do is determine what type of property I would like to buy. As I am single, I need to ask myself if I want to buy for the future with a goal of having a family with kids one day or should I buy for my present life with only myself to think about. Should I buy a one bedroom condo in the downtown area or buy a 2-3 bedroom with 2 baths in a more family-friendly area. Since I am currently single, I will most likely buy a condo, preferably a two bedroom one bath, so I can rent out a room for income. I think I will be able to afford a condo around $300,000.
Once I target the best type of residence to invest in, I will have to qualify for a mortgage. According to an article written by Patricia Mertz Esswein, I should do a self-inventory before talking to a mortgage broker. According to Esswein, a mortgage company will look at my three C’s, which is credit history, capacity (income and net worth) and collateral (the value of the home and my down payment).
Credit history is something I have experience in. I had quite a few credit balances averaging about $10,000 that were outstanding, and I paid them in full. I was able to pay them off by doubling my payments on my car loan which had $8,000 left on it. Once I eliminated my car loan, I doubled my payments on my other miscellaneous debts. It is always better to pay in full if you can. This will preserve your credit score.
As I paid off my balance, my credit history improved, which is something a financial institution will look at when I apply for a mortgage loan. At times I listen to Dave Ramsey whom I consider someone who offers sound advice on financial education. He explains a credit score as a more complex mathematical formula that the financial industry creates to determine your loan worthiness. The FICO score is hard to understand, but it is important to have a high score. What kind of score should you shoot for? According Sarah Mangla, a writer for Money magazine in her article, “The Quest for the perfect credit score” a good FICO score is a 780 or higher to qualify for a good interest rate.
To increase my capacity or income, I am finishing a technical degree program at the local community college. I have started saving money by walking whenever possible instead of driving to save gas, taking sack lunches to work and school, and finding less expensive activities to do in my city. I have also been able to save the $300 each month that I would have paid for my car loan and put it toward my $10,000 down payment. It is amazing how much this can help save for a down payment and help pad the savings account. Right now I am currently able to save 30 percent of my monthly income (about $300) for a down payment. By the time I purchase by house, I will have roughly $10,000 saved.
Since Interest rates are low right now at 2.5 percent to 3.5 percent, I would love to buy this spring, but after taking an inventory of my financial situation, I will need to work on these specific actions of planning and preparation so that next spring I can but a home.