Homeownership is a core part of the quintessential American dream. Yet, it can be challenging to know what steps you must take to reach your target successfully. Should you start setting aside money whenever possible or create a dedicated savings strategy? As a parent, you want to set a good example for your children. Your determination will teach them the key to success is hard work and planning.
With increasing expenses and debt, you must create a plan to ensure you reach your homeownership goals.
So without further ado, here are seven tips that will help you buy a home.
1. Evaluate Your Income Streams
Are you the sole provider from your family, or is there a second household income? Estimate how much you receive in each paycheck after taxes have been removed. You might have medical insurance costs or 401k contributions withheld from your pay. Look at your payslips to see what percent is being taken out so that you can calculate the income that is left at your disposal.
Determine how many income streams you have at your disposal. Some individuals have stocks or inheritance that they forget to factor in their overall income — others have side hustles. Keep in mind that only taxable income is considered on a mortgage application.
Create a spreadsheet that will include your monthly income streams.
2. Assess Your Debt and Expenses
The average American under the age of 35 has $67,400 in household debt, and those over 35 often have more than $100,000 in debt. Examine what credit cards or loans you may need to pay back. How much do you owe monthly?
Some loans offer repayment plans based on your income levels. There’s also the opportunity to refinance to receive a lower interest rate. Consider whether these are possible solutions for your situation.
Now take a closer look at your bills and household expenses. Input these numbers into the spreadsheet to determine how much income you have left after the core expenses are paid. Tracking your finances can be challenging, so consider getting a budgeting app for your phone. It’s essential that you track even small payments to calculate how your budget is being used.
3. Cut Costs
Now that you know exactly how much you pay each month in rent, utilities, insurance and general bills, begin searching for cheaper alternatives. Scour the internet for inexpensive substitutes to the plans or companies you are using now. You can also reach out to your current providers to see if you’re eligible for a different contract that has a lower cost. If your landlord sets your utility expenses, evaluate if your family could move to a more affordable location while saving money.
4. Change Your Budget
Examine what expenses are flexible. Can you save on food expenses each month if you began meal planning? There are numerous recipes online that describe dishes that cost less than $10 to make at home and feed a family of four.
Change your monthly budgets to help save money. Focus on only purchasing items you need rather than shopping spontaneously. Get creative by trying new ways to lower your costs — look at secondhand stores for clothes and household goods, and shop at discount supermarkets. Your frugal spending will teach your children the true value of money and how to stretch a budget.
5. Open a Savings Account
It’s tempting to spend money when it’s sitting in your checking account. Avoid the temptation to buy new toys, clothes or go on a family holiday. Keep your goals in sight by opening a savings account. You’ll receive interest on the money you put in and can send a percentage of each paycheck directly into the account.
While at the bank, speak to a lender about mortgages and down-payment requirements. Knowing the specifics will help you to calculate what type of home you can afford and when.
6. Estimate What You Can Afford
Now that you’ve calculated your income streams, tracked your expenses and reduced your costs where possible, it’s time to estimate what you can afford. What percent are you prepared to set aside as a down-payment? The standard deposit is typically between 10%-20%, but sometimes you can offer a smaller amount.
Keep in mind that you need to consider more than just the initial cost. Your estimated monthly repayment plan for your mortgage, home insurance and real estate taxes should be less than 30%-35% of your pre-tax income to ensure you can make installments without going farther in debt. Try using a debt-to-income calculator to estimate what you can afford.
7. Explore Programs
Before making any decisions regarding homeownership, explore whether you’re eligible for programs that assist homebuyers.
Loans and programs you may be eligible for include:
Homeownership Can Be Your Future
If you follow these seven simple tips, homeownership may be in your family’s future. Making any large payment as a single parent can be challenging, so plan ahead to eliminate stress. The American dream of owning your home is within grasp — keep going and make yourself proud!