Achieve Homeownership Goals In 2022
Throughout America, one of the most common goals for many people is becoming a homeowner. Considering the real estate market since the start of the pandemic, quite a few people have achieved homeownership. However, not everyone who wanted to become a homeowner was able to. There is still hope for these potential homebuyers in the market come 2022. There are a few steps that these potential buyers should be taking now in order to achieve homeownership in 2022.
Step One: Save To Achieve Homeownership
We have talked about the importance of down payments in our blogs before, but once again we will cover it. The down payment is one of the most important aspects of purchasing a home, especially for the first time. While there are some loans out there, VA and USDA, that might require 0% down, these loans have very specific parameters. Some loans, such as FHA loans, require down payments as low as 3.5%, which is beneficial to first-time buyers. However, saving up 20% for a home purchase can potentially lead to a lower monthly payment. This is because at 20% equity, you are no longer required to pay PMI, or private mortgage insurance.
For those who do not know or need a refresher on PMI, private mortgage insurance is an insurance policy that protects a mortgage lender or titleholder if the borrower defaults on payments. This default can be from any situation, whether they default from lack of payments, death, or any condition preventing the repayment of the mortgage. PMI is used to protect the lender, not the buyer. Mortgage insurance adds to the amount owed each month on a loan. PMI is forgiven once 20% equity is reached. This is why putting down 20% will save a buyer money in the long haul.
How To Save For Down Payments
There is many ways for a potential homebuyer to save up for their down payment. Whether it comes from creating a separate savings account you cannot touch, creating a budget, or doing a round-up savings account that saves as you spend, there are ways to save. The most efficient way to save is to designate a percentage of your paycheck to be saved. Many people couple automated savings with a budget, and it works tremendously. Working with your lender and real estate professional can also give you a general idea of how much you can afford and how much to save.
Step Two: Fix That Credit to Achieve Homeownership
Having good credit is crucial to achieving your homeownership goals. Even with a hefty down payment, many lenders will hesitate to loan to you with shaky credit. In fact, your credit score and history is probably the most important part of getting a home loan. Knowing your credit will allow you to know beforehand if your homeownership journey can even get started.
It is important to keep track of how much you are spending versus bring in as well. This is called debt-to-income, which is a ratio that every lender will gather before just handing out money. It is important to know that your debt-to-income should be no higher than 32%, in most cases. This is the magic number for lenders and they are more likely to loan someone who makes close to 3 times their spend. Lenders look for this to see if you will still be able to pay your mortgage in case something came up.
Step Three: Meet With Your Real Estate Pros
We have said it before and we will say it again, trust the pros. Working with qualified real estate professionals will help your homeownership dream become a reality. Whether it is because they have the expert knowledge of your market, know lenders who will make deals happen, or anything in between, they are professionals for a reason. Every Louisville real estate agent is required to pass background checks, take extensive courses on a wide variety of topics, and take continued education yearly.
Keeping up to date with market changes and being able to help track down other professionals, like inspectors or appraisers, is one reason to use an agent. In fact, 88% of all real estate transactions in 2021 were done with a real estate agent. This is the highest percentage of agent representation we have seen. Couple the high percentage of people using agents and near record home sales volume, and you can see the importance of agents.