Becoming a homeowner is the American dream, right? Unfortunately, too many people rush into this dream — only to find themselves in financial despair and facing foreclosure. This could’ve easily happened to me.
After getting divorced a year ago, I thought about purchasing a home of my own. I was working two jobs and sharing a bedroom at my dad’s house with my two daughters. I was desperate to be out on my own again.
To keep a long story short, I did make a few offers on houses. Luckily, all of the offers fell through for one reason or another. After this disappointment, I smartened up and decided to wait until I was financially stable to buy my own home. Instead of thinking about houses, I focused on keeping my expenses low and my savings high. I took out a small loan and bought a trailer to live in.
I’ve now realized how important it is to have your ducks in a row before even thinking about home ownership.
Here are three ways to financially prepare for future home ownership:
1. Create an Emergency Fund
I’m big on emergency funds. A few months ago, I went from working two jobs to one. My take home pay was barely covering my bills, and I had to dip into my emergency fund a few times just to get by.
Now that my income is picking up again, I’m replenishing my emergency fund and working to get $10,000 saved. This will cover just over six months of my normal expenses.
2. Banish Debt
I’m lucky to have never gotten myself deep into debt. While I did rack up a couple thousand dollars in credit card debt when I was younger, it was quickly paid off.
I did, however, take out a $10,000 loan to purchase the trailer I’m living in now. The interest rate is super low, and I’m paying $226 per month with a four-year term. Right now, I just look at this as a living expense similar to rent or mortgage payments. But, before I purchase my own home, this debt will have to be gone.
3. Amass a Big Down Payment
In terms of finances, I now prefer comfortable over minimal. So, I’d like to have around a 50% down payment when I purchase a home.
As I leap more into freelancing, my income is variable — and that’s kind of scary. I’d rather be safe than sorry. Luckily, housing in rural Ohio is very cheap. While 50% might sound like a lot to you, I can probably find a pretty decent house for around $80,000.
It will take some time to save up the 50%, but it’s well worth the wait.
In an uncertain economy, it’s smart to be extra careful with your home-buying decisions. If you can delay your house shopping until you’ve created a solid foundation for yourself, you’ll be able to avoid financial hardships and feel confident about your decisions.
While the exact numbers differ by person, creating an emergency fund, paying off debt, and saving a big down payment should be goals for most people before they decide to buy a house.
Any other preparations you’d add to this list?