To many North Carolinians, becoming a homeowner is the pinnacle of financial independence. After all, when you purchase a home, you’re making a long-term investment in your future, in the hopes of one day living mortgage free. However, buying a home and becoming a successful long-term homeowner require financial savvy that not all buyers have. Read on to learn about just a few of the financial skills you’ll need before taking the plunge to home ownership in North Carolina.
Know How to Make a Budget
For many first-time buyers in North Carolina, buying a home is the largest purchase they will ever make and often requires a complete change in the way they budget. Homeowners must budget for many things besides just a mortgage—utilities, repairs, insurance and more are just a few other considerations. That’s why having a strong understanding of how much money you have coming in; how much you have going out and how much you can devote to savings is so important before taking on the responsibility of owning a home. Check out Budgeting 101 for some tips on how to get your budget in tip top shape!
Understand How to Save Effectively
Knowing how to make a budget is a great first step, but becoming an effective saver is a close second. For renters, many of the issues that come along with their homes are taken care of by their landlords. However, when you own a home, the responsibility for repairs and emergency issues falls to you. That’s why it’s so important to establish good savings habits before you even consider purchasing a home. Good practice on how to save better starts with investing in an emergency fund if you don’t already have one. Start with $1,000 and slowly grow it until you have three to six months’ worth of expenses. Potential buyers should also be saving for a down payment. Although it is now possible to purchase a home with less than the traditional 20% down payment, a down payment is still an important tool to secure the best possible loan terms and start building equity in your home. Look through your expenses and decide where you might be able to cut back or increase your income if possible. Put the savings away in a dedicated account until you have enough for your down payment. After you buy, continue your savings by making sure your emergency fund is adequate for your new housing costs and socking away at least 1% of your home value each year for maintenance and repairs on your home.
Manage Your Debt
When you purchase a home, your debt-to-income ratio (the amount of debt you are paying per month v. your income) is a huge indicator of your financial health and a good way for lenders to decide if you are already straddled with too much debt to handle a mortgage. To make sure you can be a successful homeowner for the long term, you should make sure your debt is managed before you decide to buy and make sure you know how to handle it moving forward. Work on paying down your high-interest credit card debt to minimize the amount you have going toward your debt each month. Understanding how your debt impacts your financial picture and lowering it as much as possible will help you more easily manage it once a mortgage is added to the mix.
Financial literacy is important for everyone, but especially home buyers. The NC Housing Finance Agency offers many resources for home buyers, including financial and home buying education, as well as affordable mortgage products, including down payment assistance, once you are ready to buy. Learn more about how the Agency can help make home ownership a reality for you at HousingBuildsNC.com.