IN THIS ARTICLE:
For many of us, owning a home is the ultimate dream. But how can you plan to make that dream a reality and how do you know if you’re ready? We have some tips to help you reach your goal and signs that you’re not quite ready.
- Grow your savings. This can be done a couple of ways. If you’re a millennial, maybe move back home with your parents. If you move back home for even a few years and your parents agree to let you live rent-free or with a low rent, you can bank a lot of your cash to save for a down payment. Or, get a side gig going. Having some extra income that can go right to your house fund. If you save every penny of that, you could save thousands of dollars a year.
- Lower your expenses. Find ways you can cut items from your monthly budget – and save every penny of that in a savings account to build up a down payment.
- Reduce debt. If your debt is too high, you might not qualify for a mortgage. If you pay off your debt as quickly as you can, and then take the same amount you were spending on paying off that debt, you’ll have built a little nest egg for a house.
- Seek what you can afford. You might want your dream home, but if you look at more affordable properties – a small condo, or a fixer-upper in a less-than-ideal location – you can still build up equity and eventually move up to a bigger home or better location.
- Raise or build your credit score if needed. The higher your score, the better your interest rate on your mortgage will be. First thing is to check your credit score and, if you need to improve it, work on that first.
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- First Time Home Buyer: How to Improve Your Credit Score to Buy Your First Home
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- You have a low credit score. If you have a low credit score or haven’t built up much of a credit history yet, because you’re young or a new Canadian, you should do that first so that you can be approved for a mortgage and get good rates.
- You don’t have an emergency fund. This is not for your down payment. You need to make sure you have something to protect you if you lose your job or have another emergency.
- You have too much debt. Trying to take on a large debt like a mortgage when you have too much other debt can make it hard to be approved for a mortgage, give you a worse interest rate if you are approved and increase the chances of losing your home if you can’t manage your debt load.
- You haven’t been at your job long enough. Most lenders want to see you at the same job for two years and calculate your income based on the past 24 months. You want to show stability with no income gaps for at least 2 years.
- You aren’t mentally prepared. Many people might want to own a home because they see it as an investment and don’t want to “waste money on rent” – but if your lifestyle doesn’t take into account the work in owning a home, or the responsibilities that come with it, you might want to pass for now. Also, if you think you might get another job in another city within the next few years, buying a home could end up costing money when you consider purchasing costs and closing costs when you sell. A good rule to go by is if you don’t know that you’ll be in the area for the next 3-5 years, you probably aren’t ready to buy.
Home ownership is a worthy goal – but you want to be sure you’re ready to make that step and prepared yourself to be financially capable of it.