Looking to buy a home but it’s so hard to save when you’re paying rent? I’ve heard this before and it can be a Catch-22.
Saving to buy a home is no easy feat. Typically, you’ll need at least a minimum of $20,000 to cover a down payment plus closing costs. However, in rural areas around Lexington and Richland Counties here in South Carolina, there are homes available that qualify for up to 100% financing.
Generally, you’ll need at least a 3.5% down payment to qualify for a mortgage and then there’s closing costs. Your lender will be able to spell all the costs involved when you meet with him or her. This goes without saying, but the higher the home price, the more funds you will need for the down payment.
You’ll also need a good credit score to qualify for the best mortgage rates. You can get your credit ready to buy a home by checking your own credit score. Websites like www.creditkarma.com are free and you can keep up to date on what your credit score is.
What if there is a rent increase? Here’s how to keep rent increases from ruining your plan:
- Cut an expense equal to the rent increase. Sounds obvious, but if you can find another spending area to cut back on (Daily Starbucks? A rarely used gym membership? Online shopping?) rather than diverting the home savings to cover your higher rent, you’ll be able to stay on track.
- Look for a new place with a lower rental obligation. The process might be difficult, but could be worth it for the greater good of buying a home in the near future.
- Move in with family to aggressively save for your new house. Going from $2,200 a month in rent to $0 can super-accelerate your home-buying timeline.
- Get a roommate to help pay the rent and offset the increase.
- Lock in your rental amount with a lease, keeping in mind that a lease binds you to the property. This contract, however, might not be such a bad thing if the term of the lease is consistent with your savings and home-buying plan.
- Consider buying a home sooner, if you’re financially able to do so. Many 401(k) and retirement fund accounts allow for special privilege borrowing provisions to buy a primary residence. If you have a slush fund in your 401(k), this could be a good option and the money comes out of your paycheck - pre-tax.
Let me know how I may help!
Exit Real Estate Consultants
5175 Sunset Boulevard, Suite 3
Lexington, SC 29072