10 Steps to Getting Financially Prepared for Home Ownership

To get home, you might need some directions.

For most people real estate is their largest financial holding and for many who don't own any real estate it can seem like a daunting game to get into.  Many people who don't own their home think that they aren't able to afford one right now.  I've heard a lot of people say "I'm going to save up for a couple of years and improve my credit, before I get a house."  While that's not an altogether bad idea, most people with this mindset are always "a few years away" from making that purchase.

A question that I get asked a lot is "when do you think will is a good time to buy?"  The fact of the matter is that now is always the best time.  However, I do understand the reservations of some, so I thought that I'd outline a few steps that one could take to help turn "I'll be ready in a few years" into "I'm ready now", sooner than you think.

 

"Now is always the best time [to buy]"

 

1. Watch the small stuff:  Keep track of recurring costs and look at your monthly statements.  Make sure to avoid late payments, those fees can add up.

2. Spend less than you make: Once you've accounted for your regular expenses, make sure that they don't add up to more than you make.  Also try reducing your basic expenses for long term savings.

3. Give yourself a pay cut: If you have debt, you're already living off of less than you make due to interest payments.  Imagine that you earn anywhere from 10% - 50% less than you actually do and see if you can build a budget around that amount.

4. Kill your debts:  Remember, paying interest means that you're already living off of less than you make.  Pay off your highest interest debts first to free up more cash.  Also, stop using credit unless you can clear it the same month.

 

"If you have debt, you're already living off of less than you make..."

 

5. Ask for Help: See if you can get better interest rates on your debts or even have late fees or overbalance fees forgiven.  Talk to a mortgage broker to find out what you can do to put yourself in the best possible position for buying a home.

6. Save:  Any bonus cash you get should immediately go into debt reduction and then savings once you've managed to kill your unsecured, open ended debts.  This will be where you put the money that you'll use for your down payment.

7. Think long term: Have a financial goal in mind.  Sit down and think of a financial goal that you'd like to achieve in the next 10 years, beyond just buying a house.

8. Break it down:  A long term goal is nice, but somewhat abstract for most, so break it down into steps that you'd like to achieve for each year.  Whenever you feel the impulse to spend (or maybe eat out too often), consider whether or not that purchase will help or hinder your long term goal.

9. Spend what you like:  It might be a good idea to establish a weekly allowance account for your personal spending.  Set up an automatic transfer of the same amount from your savings account into this account each week and when the account is empty you're out of money for the week.

 

"Spend on [life] experiences..."

 

10. Enrich your life: When given a choice, I'd say it's always better to spend on experiences rather than stuff.  You'll feel more fulfilled and it'll be easier to avoid the temptation of that doodad that'll be gathering dust by next year.  Even a few dinner parties can be more affordable than a night out with friends.

If you follow these steps, you should be able to accurately determine when you'll be ready to make the move and change someday into today.  Once you get that house, you can really accelerate your journey to financial freedom.

Bonus tip: Revisit your expenses, savings and goals at least every year (and up to 4 times a year), to make adjustments and make sure that you stay on track.