How to Buy Your First Home
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Run a Personal Cost-Benefit Analysis Before you buy your first home, you should decide whether that’s what you really want. All too often, buyers assume that purchasing a home is the right choice. After all, that’s how you build equity and wealth right? And you’ll stop “throwing money away” in rent every month? Well, maybe. The fact is that homeownership isn’t for everyone. And you’ll need to look at your personal situation–financial and otherwise– objectively to figure out if it’s the right move for you. For instance, what if you’re building a budding career that’s likely to take you to a new location within the next couple of years? Once you buy a home, you may need to own it for several years before you’ll break even when you sell. That’s because there are plenty of costs involved with both buying and selling. So if you’re highly mobile, right now may not be the best time to buy a home. On the other hand, if you think you’ll be in the same location for a while and are ready to settle in, homeownership may be for you. But even in this case, it’s not always true that buying a home is best. Here’s what you need to consider first: Don’t Assume You’ll Save Money If rents are high in your area, it’s easy to assume that a modest mortgage would be cheaper than your monthly rent. And, in fact, your mortgage payment might be cheaper than your rent payment. But that doesn’t mean homeownership is necessarily less expensive than renting. And Remember Time, Too For more and more people, renting is becoming something of a lifestyle choice. When you own a home, you’re tied down with weekend chores. Trust me, it takes a lot of time to do even the basics like maintaining the lawn and minor home repairs. When you add in things like keeping the roof in good condition and cleaning the gutters, you can kiss at least half your weekends goodbye. Get Your Credit Score in Shape If you decide buying a home is the right option for you, it’s time to do the preliminary work of getting your credit score in shape. (Honestly, you should do this even if you plan to be a renter forever and ever, amen. Eventually, you’ll probably need some credit, so having a good credit score is a good idea!)
How to Boost Your Score We’ve got a ton of in-depth content on how to boost your credit score, so we’re just going to give you a bare bones outline here. Click on the links–or sign up for our Credit Over Coffee email series–to learn even more. Here are the basic steps to take to increase your credit score: Correct mistakes and errors. Many consumers notice errors on their credit reports. This could be as simple as an incorrect mailing address. Or if could be as complex as showing an account you don’t actually own. Either way, you’ll need to correct these errors as soon as you can. Ask for some goodwill. Late payments on your credit report can seriously harm your score. But what if you’ve got a record of a single late payment in an otherwise squeaky clean history? Consider asking the lender for a goodwill adjustment. Here’s how. Make payments on time, every time. Your credit score is really all about one thing–telling lenders how risky you’d be as a customer. And lenders really hate late payments. So consider automating your finances or using a budget tool like Mint.com to track when payments are due so you don’t miss any. Pay down your revolving debts. Lenders don’t like to see that you’re maxing out credit cards or carrying too much revolving debt. Paying down these balances can be one of the quickest ways to improve your score. You can learn more about credit utilization in this article. Use credit wisely. Contrary to popular belief, you don’t actually have to carry a balance on your credit card or otherwise go into debt to build your credit score. If you’re starting from scratch, you just have to use credit wisely. This means only taking out installment loans (like car loans) when you need to, and in modest amounts. And it means using a credit card but paying off your balance each month. Leave older accounts open. It may seem like a good idea to close credit cards you no longer use, but this may actually damage your credit score. Here’s how to cancel those accounts without harming your score. Keep on keeping on. Building your credit score takes time. It’s worth the effort, but you’ll want to start several months–at least–before you plan to apply for a mortgage. Keep using credit wisely, paying down debts, and making payments on time. You’ll see your score increase so you’ll save on that future mortgage.