“You can’t build a great building on a weak foundation.” Picturequotes.com
How strong are you financially? Is your source of income stable? If something personally earthshaking should occur, do you have enough savings to cover your expenses for three months or even a year? Are you investing in things that continue to build your wealth even while you sleep? For example, real estate has historically been an effective hedge against the effects of inflation.
If you own your home, your net worth is probably looking better and better, with the values on homes appreciating at over 15% year over year. (Median home prices have risen at a higher percentage, but affordability is not calculated on median home price. Affordability is determined by comparing household income with the appreciation rate.) Lawrence Yun, the chief economist with the National Association of Realtors, predicts that home prices will continue to rise over the next year or more but not at the lightning speed we have been experiencing.
Renters are having a tough time. Rents in many parts of the country have increased over 10% year over year and are predicted to continue rising. Rising rents are compelling renters to gear up to trek into the homebuying market. Good news for those entering the homebuying market—more homes will be coming on the market this fall and next year. The bad news is pricing is still going up, making it a little more challenging to find a home with a payment that matches the budget. However, once you own your home and lock in a mortgage with a low, fixed-rate, you get to enjoy a principal and interest payment that never increases.
If you want to build a good life living in a home that you own, here are some ways to get started building a solid financial foundation:
1. Get a job with a stable income, even if it is part-time. If you are self-employed, you will need to show at least a two-year income history on your tax returns. Mortgage underwriters average the last two years of NET income. (Some paper expenses can be added back to your income for qualifying purposes.)
2. Set up a realistic budget. Take two or three hours to review your credit card statements and bank statements. Then, find ways to eliminate as many expenses as possible, replacing them with a different product or service that gives you the same benefit at a much lesser cost. Once you know what you spend each month compared to your income, you will confidently know how much you can afford on a house payment.
3. Build up your savings. Arrange with your payroll department to have a set amount of your paycheck automatically sent to a savings account and let it grow.
4. Improve your credit. Review your credit at www.annualcreditreport.com and correct any errors. Make your payments on time. If you want your credit scores to improve, keep your balances on credit cards showing LESS than 30% usage on each card.
5. Get a clear vision of the life you want for the next 12 months, the next five years, and the next ten years. Then, what steps do you need to take to move you closer to that life gradually?
Get your own copy of Jo Garner’s new book “Choosing the Best Mortgage-The Quickest Way to the Life You Want.” An essential mortgage guide with people stories for finding the right loan and overcome common barriers. Buy on Amazon and Barnes and Noble or www.JoGarner.com/best-mortgage-book
