Are you renting or still living with your family? Do you hate writing that rent check every single month? Tired of not having control over your living situation? If you are, you aren’t alone. Whether you are tired of paying too much for rent or you just really want a place to call your own, owning a home likely isn’t as far out of reach as you may think.
I talk to people every day who would love the opportunity to own their own home. They want to decorate and make it feel like home, or they want to have pets or a place for their kids to call home.
The biggest issue that most people face when it comes to buying a home is the down payment. While getting your spending under control will help you to start saving money, I am not here to tell you not to buy starbucks or an iPhone.
In fact for many people in Louisiana they are about a month away ( at the time of writing this) from having the largest lump sum of cash they will have all year.
If you are getting an income tax refund this year maybe it’s time to put that money to good use. Instead of rushing out to the car dealership or the furniture and electronics store what if you used the money to build your future?
Did you know that according to the Federal Reserve, homeowner’s are 44x more wealthy than renters? The reason is that when you own a home and make the payment every month you are building equity. If you are renting you are paying someone’s mortgage and making them wealthier.
Wouldn’t you rather that be you?
If you agree, then I would recommend leveraging your tax refund this year for something that has the power to really change your future.
In Louisiana we have so many options to purchase a home that don’t require a huge amount down. Two of my favorite options are USDA Rural Development Loans and FHA.
USDA Rural Development Loans
Rural Development Loans give you the opportunity to purchase a home with no down payment. If you have done a good job of building your credit and have a decent credit score, usually around 640, USDA can be a great option.
There are some restrictions as far as where you can and how much money you can make. If you want to learn more about this powerful loan program you can check out The Complete Guide to USDA Loans. Don’t let the rural part fool you. Most of the suburbs in Louisiana will be eligible for USDA.
FHA loans are another great option for Louisiana home buyers. FHA allows you to purchase a home with just 3.5% down. FHA also is very flexible on credit requirements. Typically FHA will approve loans with credit scores as low as 580. They also allow you to have collection accounts and charge offs. While we can’t guarantee an approval if you have past credit issues FHA is typically going to be your best bet. It’s also great for buyers who don’t have a lot to put down.
So if you are getting an income tax refund and want to use that as your down payment, this would be a great option. In The Complete Guide to FHA Loans I go more in depth and show you everything you need to know about buying a home with FHA.
Owning A Home Isn’t For Everyone
With this in mind, I feel like I have to say that owning a home isn’t for everyone. If you know you won’t be living here long term and will be moving soon, owning a home would likely not be the best move.
If you are struggling to make ends meet, owning a home might not be the best decision either. There are other costs associated with buying a home, like maintenance and upkeep that could make things even harder for you.
The exception to this would be if you can purchase a home and pay less money every month than you are paying right now. A person paying $1200 per month in rent could purchase a home in the $180k-$200k range. If you find a home in a lower price range and pay only $1,000 a month that’s a savings of $200 per month.
Set a Budget
This brings me to the most important thing you need to know. Mortgage people are salespeople including me. You can’t always be sure they have your best interest at heart. The best thing you can do to protect yourself from a salesperson who may not have good motives is to educate yourself.
The second thing you must do is set a budget. Go through all of your expenses and bills and find out exactly how much you are spending every month. A great tool to help you do this automatically is mint.com. I also recommend having a checking account with Simple Bank.
The reason you want to have a monthly budget for what your max mortgage payment should be is so that you know what not to exceed. If you have done a good job of keeping your monthly debts in check, chances are you can be approved for a higher monthly payment than you want to spend.
By knowing exactly what your max budget is and committing to not exceeding it you will know exactly what price range you need to stay in. You’ll be less likely to go over budget or allow someone to talk you into something more expensive.
The bottom line is that buying a home can be a great investment for your future if you plan properly. By choosing to save your income tax refund to help you purchase a home you will put yourself in a position to build future wealth. The question is never if you are going to pay a mortgage, it’s who’s mortgage are you going to pay? Your landlords or yours?
Make an investment in your future this year. Start building equity in a home you’ll love with a payment you can afford.