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In a recent Harris Poll survey, it was found that 80% of Americans consider buying a home as a priority, and 28 million of them have plans to purchase a home within the next 12 months. It is not surprising considering the various financial and non-financial benefits that come with homeownership.
However, it is highly unlikely that all 28 million Americans will be able to achieve this goal in the coming year. According to experts, the total number of homes projected to be sold in 2023 is around five million. This significant difference is partly due to the various challenges associated with purchasing a home.
The same survey revealed that when asked what is preventing them from pursuing homeownership, 34% of respondents cited a lack of savings for a down payment, while 30% cited their credit score as the reason.
If buying a home is your goal, it is essential to understand these challenges and work towards overcoming them.
Save for Your Down Payment
Your down payment is a big chunk of what you pay up front for your home. For most home purchases, buyers put down some amount of cash up front (a down payment) and then take out a loan (a mortgage) to pay for the rest.
It’s a longstanding myth that you need to pay 20% of the purchase price for your down payment. In reality, 20% down isn’t always required. In fact, according to the National Association of Realtors (NAR), today’s median down payment is 14% for the average buyer and just 6% for a first-time buyer.
Regardless of how much money you can save for your down payment, know there’s help available. A local lender can show you options to help you get closer to your down payment goal. Plus, there are even loan types, like FHA loans, with down payments as low as 3.5% for some buyers, as well as options like VA loans and USDA loans with no down payment requirements for qualified applicants.
Beyond assistance programs and different loan types, here are a few other tips to help you as you save for your down payment:
- Remember to factor in closing costs. In addition to your down payment, closing costs are usually 2-5% of the home’s purchase price.
- Maintain your savings. Your down payment shouldn’t deplete all your savings. It’s important to still have some money set aside for homeownership expenses after you move in.
- Explore your options and lean on your trusted advisor for expert guidance. Do your research, ask questions, and look into the resources available for buyers like you.
Improve Your Credit Score
Your credit score is a number that indicates how financially reliable you are to lenders. A higher credit score usually means you’ll be able to borrow more money at a better interest rate. If your credit score is preventing you from getting an affordable mortgage, there are steps you can take to improve it. Here are two:
- Pay your bills on time. When you pay your bills on time, your credit score improves. When you’re late, it takes a hit. One way to make paying your bills on time easier? Set up automatic payments when and where you can.
- Mix it up. From auto loans, to credit cards, to mortgages – there are several different types of credit. And having a mix of them improves your credit score.
If you want to purchase a home this year, let’s connect so we can start preparing.