Simple Steps to Take to Move From Renting to Owning
Renting serves its purpose. It provides you with a place to lay your head each night and shelter to keep you safe. However, it doesn’t provide the long-term financial benefits that homeownership can offer.
If you are a renter who is dreaming about a place to call your own where you don’t have to worry about rising rents or following a landlord’s rules, it may be time for you to embark on the homebuying journey. Read on to discover what steps to take to move from being a renter to becoming a homeowner.
Seek the right partner
Buying a house can be a tough process to go through, particularly if you’ve never done it before. If you are a renter, you probably wouldn’t know what to expect. The good news is you don’t have to go through the homeownership process alone. HomeFree-USA and other nonprofit organizations have professionals who can guide you every step of the way. A Homeownership Advisor can not only tell you how to get your finances ready so you are more likely to be approved for a mortgage, but they can help you find a lender, a realtor and other experts you will need on your homebuying journey.
If you’re currently renting and thinking about buying a house, now is the time to start educating yourself about the process. The more you know about homeownership the better. You’ll feel more confident if you have an idea of what you can expect. You’ll also be more knowledgeable when you are interacting with lenders and other financial professionals.
There are a number of ways you can educate yourself. One of the best ways is to attend workshops and classes that provide homebuying advice. You can also read books on the subject or ask your Homeownership Advisor to explain things to you.
Take steps to improve your credit
While credit is important when you’re a renter, it can potentially make an even bigger difference when you’re ready to buy. Not only will your credit score factor into whether you will qualify for a mortgage, but a high credit score will help you qualify for a lower interest rate. If you have a lower interest rate, you will spend less on your house in the long run, and you may even be able to afford a bigger house than you would be able to afford if you were offered a higher interest rate.
You don’t have to have perfect credit to buy a house so don’t feel like homeownership is out of reach because you have a blemish or two on your credit report. Instead, work with a Homeownership Advisor to find ways to get your credit ready for homeownership.
Here are some steps you can take to improve your credit:
- Pay all your bills on time. If you have a problem remembering to pay, automate your payments so you don’t have to think about it.
- Pay down your debts. The more you can pay off, the better.
- Keep your credit card balances low. Strive to use less than 30 percent of your available credit. That means if you have $1,000 in available credit, you’ll want to keep the balance below $300.
- Avoid taking out new loans. If you’re planning to move from renting to owning, now is not the best time to open a new department store credit card or buy a new car.
Build a cash cushion
If you’re planning to move from renting to owning, you’ll want to stash some extra cash away. You may not need a lot of cash for a downpayment; you may qualify for downpayment assistance. For example, Stefany worked with HomeFree-USA and was able to qualify for $39,000 in downpayment assistance and closing cost help.
However, even if you don’t have to spend your own money on a downpayment or closing costs, you can benefit greatly from having more money in the bank. With those funds, you can furnish your house or have money to handle any unexpected emergencies.
If you’re wondering how to come up with some extra cash, here are some strategies to try:
Consider the additional costs of homebuying
There are certain costs associated with homeownership that you don’t have to worry about when you are a renter. For example, renters typically don’t have to be concerned with cutting the grass while landscaping is a concern that many homeowners must face. Renters also don’t have to worry about making repairs when items break down. While your landlord would likely be responsible for a malfunctioning washer or dryer, you can expect to have to take care of the costs of repairing your own appliances or buying new ones if you own a home.
Some experts say each year you should set aside approximately 1 percent of the purchase price of your home for repairs. That means if you paid $300,000 for your house, you should budget $3,000 a year or $250 per month.
As you plan to move from renting to homeownership, start considering how the extra costs associated with maintenance would impact your monthly budget.
Keep in mind homeownership’s financial benefits
While you’ll need to adjust your budget to handle the costs of homeownership, there are plenty of financial benefits to becoming a homeowner, as well. For one thing, every time you make a mortgage payment, a part of it goes toward the principal of the loan. As a result, each month you have more equity in your house, which is the difference between what your home is worth and what you owe. There are also tax advantages to owning a home, so while you may have to spend more money on home maintenance, you may find that you come out ahead when tax time rolls around.
Factor in the costs of rising rents
While you’re comparing costs, it’s important to acknowledge the uncertainty that comes with renting. Unless you live in a rent-controlled building, it’s hard for you to know how much your rent may rise from year to year. However, if you’re a homeowner with a fixed-rate mortgage, you can rest assured that your mortgage payment will remain the same. On top of that, during the last couple of years, rents have been skyrocketing. In fact, average rent prices have gone up more than 20 percent over the last year. In some regions of the country, rent prices are 50 percent higher than they were a year ago. Sure, there are additional costs to consider when you’re a homeowner, but renting can do plenty of damage to your wallet as well.
No matter how long you have been a renter, homeownership is within your reach. By taking a series of steps to prepare yourself, you can embark on the homeownership journey with confidence and leave rising rents and landlords behind forever.