Homeownership Is Still Within Your Reach

America is coming out of a strange fog, one that first settled down on our country during the heady days of the 1990s. Back then, the way lenders determined how mortgages and other loans should be offered was relaxed, allowing consumers to become homeowners with little or nothing down.

The worst form of that fog could be found in the form of no-documentation mortgages, those lending vehicles where prospective homebuyers were not required to show proof of income. A well meaning plan to help low income people become homeowners ended up being a boondoggle, one whereby homeowners could not keep up with mortgage payments and soon found themselves having their homes foreclosed. A contributing factor to today’s economic climate were these sub-prime mortgages, something that has cost our country dearly.

Qualifying For A Home Loan

Lending requirements have tightened considerably over the past few months, making it much more difficult for first time home buyers to jump in the market. With housing prices off considerably from highs reached in 2006 and 2007, the opportunity to find an affordable home is quite good. Still, many borrowers are finding that they need to have very good credit (a credit score of at least 700) and a sizable down payment, usually 20%.

These two requirements has made it difficult for first time buyers, especially those who don’t yet qualify for a loan. However, what you can’t afford today, you may be able to afford six months, one year, perhaps three years from now, opening up a world of opportunity if you can patiently wait.

To reach your goals of having enough money for a down payment, the following steps can help you get there as soon as possible:

Establish a savings pattern – If you have $15,000 saved toward the purchase of a home and know that you’ll need as much as $30,000 to qualify for that $150,000 house, that means you need to save another $15,000 in as reasonably short a period of time as possible. If you desire to become a homeowner within the next two years, then that means you’ll have to set aside $625 per month in savings to reach your goal. If you can spare that much money over that time, then your goal is within reach. If not, you either need to stretch out your savings plan or consider other ways to raise the money.

Attack your debt — While saving for a home, you’ll want to also make sure that your debt is reduced and that you are up to date on all payments.  Your credit history will be scrutinized by your future home lender. Make sure you pull your credit reports and clean up any potential problems. The better your credit, the higher your credit score. The higher your credit score the increased likelihood you’ll be approved for a loan and get that mortgage at a fair rate.

Control your expenses — The #1 hazard to your bottom line are your expenses. Some costs you cannot control, but many of them you can. Consider consolidating debt, choosing a better cell phone plan, downgrading your cable, eating in, shopping in bulk, cutting back on entertainment costs, etc. There are plenty of ways you can save on expenses without radically adjusting your lifestyle — make good use of the internet to find the best way to conserve your cash!

Live on a budget — Once you have full knowledge of your income and expenses, then you’ll be a position to establish a budget that can help you reach your goals. You’ll have a better understanding of where your money goes and what steps you can take to save more money with a budget.  Living on a budget now will help you when you become a homeowner, giving you the power and freedom you need to succeed.

Bank on it — The money you are setting aside for your down payment should be placed in an interest bearing savings account. This is no time for you to put your money at risk, but it could be a good time for you to lock in your money for twelve months or longer at a high interest rate. Currently, certificates of deposits (CDs) are paying about as much as 4.25% through online institutions such as ING Direct. Your money is insured, it’ll grow faster, and you can reach your goal sooner.

Seeking Help As You Embark On Your Journey

Finally, if you are having trouble reaching your goals, being accountable to someone else can certainly help. Your spouse, friend, or trusted professional can be of assistance to you, offering their perspective on matters and encouraging you along the way.

Saving money to buy a home can be a trying experience. However, once you qualify for a home and find the house that you like, you’ll find that all of your hard work has paid off, giving you the most valuable asset that anyone can own.

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Tags: down payment, first time homebuyers, home loan, lending, mortgages