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This is the first part in the series, You Too Can Buy a House. Lacking guidance from trusted people we know, Hun and I did tons of research into the house buying process, in order to understand and equip ourselves with the necessary knowledge as we sought a house for our family. In that process, I learned so many things I never would have learned otherwise. I thought all this knowledge would be helpful for others. Thus, the series was born.
It may seem like a no-brainer, but it really is important to know your finances. Additionally, and maybe more importantly, you need to understand your finances. Just because you think you can’t afford a house or wouldn’t qualify for a loan to buy a house, doesn’t mean you can’t. It may be shocking to learn that there are many working and blue collar working class, families that have a mortgage. And, no, I’m not just talking from the boom back some 10 or 15 years ago. I’m talking, right now, today.
In fact, you’re presently reading the blog of a stay-at-home mother who’s heart husband wears a uniform to work every day and is paid by the hour. Yep, we’re your every day blue collar working class family. And we have bought a house!
If I may say so myself, it’s quite a nice house and we weren’t just “lucky”. Through much time, travel, and trial we found one that would work for us. This is why I’ve started this mini-series, to talk about how reasonable and realistic buying a house can be for you, too!
Since the first post in this series focuses on finances, I will say a couple of things. First, I’m not financial advisor. As a matter of fact, I’d rather not deal with most things related to the financial world. I find it quite cumbersome, complex, unclear, and incredibly frustrating. So, I can’t (nor do I really want to) tell you the right thing for you to do in your situation. I can and am only sharing what we did and an idea of some ways or plans you can make to get your finances in order. Next, I want you to know that in no way do I intend for you to take any of the information I provide as nothing more than our experiences and my (quite very) limited knowledge on the subject of finances.
Okay, now that that’s out of the way. Let’s get to it.
Evaluate your current income and expenses.
Take into account the income that comes into the home every month. If it varies considerably, take a good 6 month average. Next, look into what you’re paying for rent, any vehicle loans, insurances, food, clothing, entertainment (yes, this includes internet and/or cable/satellite tv, etc.), and other ways that money is leaving the bank. Don’t forget about those little things, like the coffee or the cigarettes or the cellphone. Anything that causes money to leave the bank needs to be accurately accounted for.
From this list, is there anything that can be cut back or eliminated? Is it necessary for anything to be cut back or eliminated? (hint: the answer to this question is likely to be yes, but you have to take into account how each thing serves you and if there’d be a true negative impact to eliminate it.)
Now that you really know what your current finances look like. Take a look at your credit score and history. Is your score below 500? If not, it’s quite possible you might qualify for a loan. Do you have extreme amounts of debt on credit cards especially? How close to the limit are these cards? Ideal is to have them at 30% of the limit or less. Also, do you have a bunch of negative reports on your credit history? Does your credit profile look like someone who pays on time and is responsible? If not, you know this is probably the first area you need to work on improving.
Compare rental costs vs. ownership costs
Are you already paying $600, $700, or even $800 or more a month in rent? Are you currently responsible for any utilities? What about any costs to commute (if necessary)? Also, take into account what a reasonable interest rate mortgage (link to calculator) would be as compared to your current rental costs.
But, don’t forget to look at potential taxes (city and/or county) and mortgage insurance (more on this later in the series) and homeowners insurance! These fee of factors here could be the difference between a higher on the spectrum mortgage vs. a middle of the spectrum mortgage for you and your situation.