The American dream varies depending on what you want to do with your life. For some people, it means building a business and earning their keep the unconventional way. For others, it simply means locking down a solid career and retiring peacefully around the time they turn 60.
Regardless of what dream you subscribe to, your goals probably include finding an amazing home for your and your family. The biggest hurdle here is figuring out how to afford your dream home.
We’re here to help you navigate this issue. Keep reading for a quick guide on all the ways you can afford to buy a home.
Understand the Different Types of Loans Available to You
For most people, buying their dream home means taking out a mortgage. Unless you have a few hundred thousand dollars lying around, you’ll need to apply for a home loan. Especially if you are a student who wants to have your own accommodation, applying for a UK student mortgage is the perfect option.
Depending on your credit history and other circumstances, the loans available to you will vary. Let’s take a look at some of them now.
Conventional Home Loans
Conventional home loans are some of the most common mortgages. They typically come with attractive interest rates and loan terms. They come in 10, 15, 20, and 30-year terms.
However, these types of loans required high credit scores and large down payments, which can make them more difficult to qualify for.
FHA Loans
For people with lower incomes, smaller down payments, and lower credit scores, FHA loans are available. With FHA loans, you can buy a home with a down payment of as little as 3.5%.
These loans are backed by the government and require mortgage insurance.
VA Loans
VA loans are another form of government-backed house finance reserved for people in the military. This includes active duty, reserve, and veterans.
VA loans are unique in that they don’t require any kind of down payment. They also come with favorable interest rates and terms.
If you can’t find an existing house on the market, you can also apply for a VA construction loan. This will help you build your dream home, rather than trying to find one that already exists.
Fixed-Rate Vs Adjustable-Rate
Finally, you’ll need to decide between an adjustable-rate mortgage and a fixed-rate mortgage. Adjustable-rate mortgages generally provide a few years at a guaranteed low-interest rate. Then, it will fluctuate (up or down) based on the current real estate market.
These are easier to get for people with lower credit scores but come with more risk. However, you can get an adjustable-rate loan and take advantage of the first few years of low interest. Then, as your credit score improves, you can refinance the house for a better mortgage.
Fixed-rate loans are exactly what they sound like. The interest rate you’re approved for will be locked in for the entirety of the loan, which makes your monthly mortgage payments more predictable. Once again, you can refinance in the future as your credit score improves if you want better rates.
Learn How to Improve Your Credit Score
We’ve talked a lot about credit scores and approval ratings. Whether you’re buying a dream home or building a dream home, these things can make or break your success.
Your credit score is based on your history of paying bills, borrowing money, using credit cards, paying rent, etc. If you’ve made a habit of making late payments, your credit score will be negatively affected. Similarly, if you have maxed out credit cards, it shows that you have no problem spending money on credit, but have a hard time paying it back.
Finally, your debt to income ratio will impact your loan eligibility. This is the amount of money you owe each month to debts divided by the amount of money you earn. A high debt to income ratio impedes your ability to get approved for your dream home.
Fortunately, there are several ways you can improve your credit score. This includes:
- Paying off debt
- Increasing your monthly earnings
- Paying your bills on time
- Consolidating your debt
- Paying down credit cards
- Settling past-due accounts
- Etc.
The better your credit score is, the more money you’ll be able to get approved for. It will also grant you access to lower interest rates.
Save Up for a Down Payment
Finally, one of the most important house finance tips is to save up for a down payment. As noted earlier, some loans require a minimum down payment of some percentage.
Some loans will allow smaller down payments but will force you to buy mortgage insurance. The ideal down payment on a house is 20%.
This will waive any possible mortgage insurance requirements and will give you better loan terms. It will also make it easier for you to get approved for your dream home.
Here are some tips on how to save up for a down payment.
Sell Some Stuff Online
Most of us have way too much stuff as it is. And if you’re going to move, it will be easier if you get rid of the stuff you no longer want, use, or need.
Go online and sell your unwanted belongings on Facebook. You can earn thousands of dollars collectively for electronics, recreation equipment, clothing, and more.
Pick Up a Side Hustle
Another way to earn extra money for your dream home is by finding a side gig. This can mean picking up extra shifts at work or starting a part-time job.
You could dogsit, clean homes, write content online, manage social media accounts, etc. The options are endless.
Rent Out Your Spare Bedroom
If you’re looking for a passive stream of income, rent out your extra bedroom. While this means sacrificing a bit of privacy, having a few hundred extra dollars coming in every month will certainly help you save up for a down payment. Just make sure the renter knows you’re planning on buying a house and moving in the future.
Donate Blood Plasma
Finally, you can make a surprising amount of money donating blood plasma. You can make up to $50 each time you donate. Some people make $300 a month.
Additionally, some organizations pay big money for first-time donors. You might be able to take advantage of a special offer to make close to $600 your first month.
Are You Ready to Buy Your Dream Home?
Whether you’re building a home or buying a home, don’t let anything hold you back. In this article, we’ve uncovered multiple ways you can afford your dream home. Ultimately, it comes down to how hard you’re willing to work and what you’re willing to sacrifice to make it happen.
We wish you the best of luck. And if you want more finance tips or home-buying advice, stick around. Look through some of our other articles before you go.