Key takeaways:
- Property ownership is a pivotal step toward financial freedom and paves the way to independence.
- Aiming for a credit score of at least 660 opens up more FHA and conventional loan opportunities.
- Use credit cards wisely, using no more than 30% of each card’s limit to maintain a healthy debt-to-income ratio.
- To accelerate mortgage repayment, make one additional payment a year to potentially shortening the loan term significantly.
Real estate is often considered a safe investment; however, the pathway to owning property can be a challenging one. That’s why Andrea Lawful-Sanders started a new segment on The Source dedicated to creating generation wealth through property.
Lawful-Sanders was joined by Anthony Lee, a licensed realtor at the Good Neighbor Real Estate Group, who gave a breakdown of what first-time home buyers need to know.
The first step in getting ready to buy a home is ensuring your finances are in order. “I’m gonna keep it really simple. Credit. Again, credit. Make sure your credit is in order. Preferably, you want to have a 660 credit score,” said Lee. Good credit is a foundational element for prospective homebuyers. Aiming for a credit score of at least 660 opens up more FHA and conventional loan opportunities. FHA loans are suitable for beginners, offering 6% seller assistance to help with closing costs, while conventional loans are preferred by those with stronger credit scores and income, offering 3% seller assistance.
Choosing a conventional loan means lower monthly mortgage payments than FHA loans but requires a larger upfront payment. Paying $5,000 upfront covers your entire cost while financing that amount can result in over $10,000 in expenses due to interest and fees. Going conventional is a more cost-effective long-term choice if you can manage the higher upfront payment.
Lee cautions individuals to use credit cards wisely, using no more than 30% of each card’s limit to maintain a healthy debt-to-income ratio. Paying bills on time is crucial for maintaining a good credit score. It’s essential to understand when credit bureaus report your credit score, which may be before your actual due date. Setting up automatic payments and making additional payments throughout the month to demonstrate responsible credit use can lead to credit limit increases over time and improve your overall score. “If you utilize your credit the right way, I’m telling you can have hundreds, thousands of dollars, millions of dollars in credit faster than you can save it,” said Lee.
Once you secure a mortgage, paying it off is vital for maintaining good credit. To accelerate mortgage repayment, making one additional payment a year is a great option, potentially shortening the loan term significantly. Another approach involves leveraging your tax return and setting aside a portion for an extra monthly payment each year. You can divide your monthly mortgage payment into two portions, paying half on the 1st and the other half on the 10th of each month. This method enables an additional contribution toward interest, which is helpful if you have an FHA loan characterized by a more interest-heavy initial stage.
Such financial discipline fosters faster equity accumulation, opening up investment opportunities or covering future expenses, such as your child’s college education or building up your savings. Overall, property ownership is a pivotal step toward financial freedom and paves the way to independence, ensuring a more secure and prosperous future for you and your loved ones.
