5 New Year’s Resolutions for First-Time Homebuyers

As 2024 approaches, many of us are setting goals for the new year, and if buying your first home is on your list, you're not alone! Navigating the process can be daunting, especially with higher interest rates impacting affordability. But don't worry, we've got your back!

To make it more achievable, consider these five resolutions. They'll guide you through the journey, making your dream of homeownership a reality in the coming year. Together, let's make 2024 the year you find your perfect home!

Resolution #1: Work on Your Credit Score

Your credit score plays a crucial role in homebuying, influencing your costs, down payment, and mortgage eligibility. A minimum credit score of 620 is needed for a conventional loan, while a USDA loan may require 640. An FHA loan is accessible at 3.5 percent down with a score of 580, but lower scores may mean a 10 percent or higher down payment.

Boost your score by paying down debt, timely monthly payments, and avoiding new credit accounts. Be cautious about hard inquiries, which can harm your score. However, checking your own score is a "soft pull" and won't affect it. Regularly monitoring your credit helps ensure accuracy and tracks your progress toward mortgage qualification.

Resolution #2:  Pay Down Debt

Your debt amount doesn't just play a pivotal role in your credit score; it also impacts the size of the mortgage loan you can obtain. Lenders want to see a debt-to-income ratio of 43 percent or lower, with 50 percent or higher disqualifying you for loans with more attractive interest rates. To make the debt reduction process less intimidating, focus on one credit card or loan at a time while continuing to make your minimum payments on other cards or loans.

Which debts should you pay off first? That depends on your strategy. The most tried-and-true method is to pay off the ones with the highest interest rates first (again, while continuing to make minimum payments on other debts). Store credit cards usually have the highest interest rates, followed by credit cards, personal loans, and other installment loans like auto and student loans. Check your cardholder agreement or loan terms for the most accurate information.

Resolution #3:  Save for Your Downpayment

When diving into first-time home buying, saving for a downpayment tops the list. After working on your credit score, shift your focus to gathering the funds needed for this crucial step. Downpayments vary from zero percent to over 20 percent. The more you put down, the better your debt-to-value ratio, translating to a lower monthly payment.

Here's an extra perk: paying more upfront can save you in the long run, especially if it keeps your downpayment above 20 percent, avoiding the need for private mortgage insurance.

Struggling to save while paying rent? Beyond the usual savings tactics, explore local first-time homebuyer resources. Many regions offer forgivable loans and grants, easing the downpayment burden.

Feeling unsure? Lean on us! We're connected with local lenders and can guide you based on your unique situation.

Resolution #4: Avoid Large Purchases

If you’re trying to buy a home for the first time, you’ll want to steer clear of large purchases in the meantime. You’ll need as much money as possible for that downpayment, and spending it on a vacation, new car, jewelry, or another nonessential item only sabotages your effort. Making those purchases with a loan or credit card can prove especially problematic. You can't raise your credit score and lower debt while adding new debt to the ledger.

Resolution #5: Avoid Starting a New Job

As New Year's resolutions often involve significant life changes, like pursuing a new career or job, you might think landing a higher-paying position would boost your appeal to mortgage lenders. However, lenders typically look for a stable job history when considering applicants. For example, conventional, FHA, and VA loans often require a minimum of two years in your current job.

If you're eyeing a job switch while house hunting in 2024, there are strategies to mitigate potential setbacks. Staying within the same industry helps, and you can also provide evidence of a four-year degree in a related field or draft a compelling letter explaining your job change. It's all about showcasing your financial stability to lenders!

As you gear up for homeownership in 2024, keep it simple and effective: polish your credit, save for that downpayment, and steer clear of major expenses. If a job change is in the works, stick to your industry or highlight relevant qualifications. These broad strokes will pave the way for a successful journey into homeownership in the coming year!