For most young people, taking on a mortgage seems like a daunting task-when you’re first starting out, the last thing you want to do is to make a commitment for as long as thirty years. You’re still uncertain about your goals, your financial situation, and in some cases even finding a life partner. Many young people choose to rent instead of buy because it leaves them with a way out.
Renting is a viable option. You can lease an apartment or a house for six months to a year, establish your credit, and build on your home décor. The problem is that you are throwing your money away. You’re not even saving on your monthly payments; many times, rent each month can be double what the average mortgage will cost you. More than that, when you opt to buy you are making an investment that could result in a profit. When you rent, someone else is making a profit off of you.
There are steps that you can take to ensure that you make the best decisions when you decide to buy. The first of these steps is that you must build your credit. Hopefully, when you are just starting out you have no credit. Many people will say this is just as harmful as bad credit. Wrong. Now, if you attempt to purchase a home with no credit, then of course you will probably not be approved for a loan. However, if you go out and find available credit for more than you can afford in order to build your credit, it will only hurt you in the long run. The key is to start out small. Acquire one credit card, use it to pay your monthly bills, and then pay it off at the end of the month. A credit card should be used for nothing else.
Say your bills each month consist of a cell phone, a light bill, a car payment and a car insurance payment. Total these amounts and figure out how much you will need to take out of each paycheck to cover them. Pay those four bills with your credit card, and pay the credit card off with the money you save out of each paycheck. Keep a monthly balance on your credit card of ten percent of your credit limit. Many people will tell you not to keep a balance at all. That is not as effective. Credit agencies rate you based on how you use your credit; so if you’re not using your credit, it’s not going to benefit you. Don’t go over the ten percent in order to keep finance charges low.
This method will not only build your credit, it will also help you learn how to manage your monthly payments. Every little thing can affect your credit score. Most people think if they are late on a payment one time it will not affect their credit score. This is not true. Establishing good credit early is essential to getting you into a home.
Once you have made the decision to purchase a home, the next step is to pick the right mortgage company. The best route to go is through a bank because they are credible and reliable. Try to avoid variable interest rates, even if it means asking a trusted family member or friend to cosign for you. If you must obtain a mortgage under a variable rate, however, you still have options. After one year, you can refinance your home under a fixed rate. Refinancing after one year is a wise choice in all circumstances.
Learning to make good financial decisions should be as pivotal a goal as earning a college degree and finding a worthwhile career. Keep your credit in check and think carefully about investments in order to meet goals. Remember, committing to a thirty year payment might sound overwhelming, but if put in perspective you might find that it will be worth the effort. If one purchases a home at the age of twenty years old, the home will be paid for by the time the homeowner reaches the age of 50-well before retirement age.