Buying a home is a daunting prospect for anyone, experienced or otherwise. However, it is especially discouraging to begin a home search with a less than stellar budget.
You might be surprised to learn that there are dozens of ways to move forward in the search for your home with very little money in your pocket. In fact, The Aitken Home Team recommends two simple tips to get you started off in the right direction:
Build/Repair Your CreditBad credit (or no credit at all) is not a life sentence. Work to actively build your credit and, if it needs some repair, seek the advice of your mortgage lender and financial advisor. The two professionals are experienced at working in tandem in order to help you achieve your financial goals. Your lender will tell you exactly what your need to have in the bank and will be prepared to share measures you may take in order to repair your credit. Your financial advisor will look at your goals long term and will work to protect you from being "house poor" once you make your home purchase. Whatever your personal financial scenario, make sure you are starting off on the right food in order to avoid long term financial hardship.
Related: 5 Surprise Expenses for New Homeowners
You can get the ball rolling by securing a copy of your credit report at www.annualcreditreport.com . Be sure to review this under all three major credit reporting agencies. You are entitled to one free copy of your credit report annually. Be sure to review this thoroughly in order to check for errors. In the event that you note a mistake, contact each individual agency in order to follow the steps to filing a dispute. You do not want error on your credit report! Unbeknownst to you, such mistakes might be weighing down your credit score!
Low credit scores are often viewed by lenders as higher risk than someone with terrible credit. Check into low APR credit cards and open an account. Start using the card to pay monthly utilities or gas and pay it off at the end of each billing cycle. This will boost your credit score quickly and will also help to develop financial discipline and regimentation which will prepare you for paying the monthly mortgage on time. While this step might seem minor, it is actually a major component of establishing a history of timely payments and showing lenders that you are very reliable, thus presenting a low risk for financial institutions. In addition, thirty-five percent of your credit score is derived from your payment history. Thirty percent is determined based on how you use the credit. Try to keep your utilization under a max of thirty percent. If you can go lower, that is even better. Start by reviewing options for a bank-issued credit card. Their approval processes are more stringent, however they are widely accepted and are known for lower APR's. Don't fall into the high APR store credit card trap!
Change Your DietAs Dave Ramsey is known for saying, "live on a beans and rice budget." Avoid dining out and start planning meals around a monthly budget. While you might subsist on beans and rice for a while, you will achieve your dream of home ownership much sooner with the money you will save from dining out and you will look fabulous in that new pair of jeans you bought last week! It's a win-win situation. Make sure you are tracking those monthly dollars. Know where they are going and why! The concept of cutting back sounds depressing and seems difficult, but it is short-term and you will appreciate your new home all the more knowing that you worked hard to get it.
In addition, don't be afraid to take on odd jobs. Check out easy side gigs such as Uber, Lyft, Shipt and Door Dash. You can make all of those options work around your day job. Speaking of which, don't be afraid to ask your boss for opportunities to move up the ladder! Explore every option available and prove yourself worthy of a pay raise. You never know who's watching!
Building your savings and establishing healthy credit are going to take time. Develop a reasonable timeline and a plan for getting there and be disciplined in sticking to it! Just remember: the more your work, the faster the time will pass and you'll be resting your feet on the coffee table in your new living room before you know it!
Related: 5 Tips for Considering a New Build