Saving Your Way To Your Dream Home!
It’s perfectly natural to get sick of renting. There are a lot of landlords who are professional, helpful, kind and accommodating… But you never seem to get them. Instead you get a cynical and lazy land baron who hikes the rent up every single year while taking his sweet time to carry out the basic repairs and maintenance that make your home safe and habitable. Even if you’re lucky enough to live in a property where the landlord treats you well and keeps the rent reasonable, not living in a property that’s entirely your own can be creatively and psychologically stifling. It’s not easy to be able to make your home your own when your tenancy agreement is loaded with restrictions. Nobody likes having to submit a written request for permission to hang some wall art or put up a set of shelves. Plus, if you want to get a dog or a cat… That’s just out of the question for most landlords.
With this in mind, it’s no surprise that many people of all ages are simply itching for a home to make their very own. There’s just one problem… The deck is stacked heavily against them. Although most economies have mostly or entirely recovered from the banking crisis of 2007-2008 banks have become a lot less cavalier about mortgage lending, especially to first time buyers. While the restrictions on lending are designed to insulate home owners from risk as much as the banks (a lot of people who bought subprime mortgages lost their homes), this can be cold comfort to you, especially if you’ve already found and viewed the home of your dreams and missed out on it. Here, we’ll look at some practical ways of coping with rejection if you’ve been turned down for a mortgage as well as some useful ways to save for the home of your dreams.
Coping with mortgage rejection
It can be crushing when your application for a housing loan on your dream property is rejected. You feel as though you’re forever condemned to never quite feeling at home. Yet, as dispiriting as this may be it’s important to think of it as a blessing in disguise. While it can be easy to get frustrated with the bank or mortgage lender who turned you down, they never reject an application arbitrarily or out of spite. They do so because they suspect that you might have difficulty keeping up your payments or you don’t have a sizeable enough down payment to be able to realistically pay off the mortgage within your working life.
So, you may have to rent for a little while longer. Is that really the end of the world? While home ownership is a noble enough goal the notion of rent as ‘dead money’ is a myth perpetuated by baby boomers who bought property when it was cheap and either sold it for a huge profit or let it out to younger tenants at a huge profit. This myth is a stark contrast to the economic reality of the 21st century. Don’t let your desperation to escape what you see as the ‘rent trap’ propel you headlong into a mortgage that’s so high in interest you may as well be renting for all the equity you gain on your property with each passing month.
Fortunately, there are plenty of other properties out there, and you have as much time as you need to get yourself in the position to buy one.. While the property that got away may have ticked all of your boxes, there are plenty more fish in the sea. Allow yourself a little time to mourn the home you didn’t get and focus on how you’re going to get the next one.
Know your credit rating… And what you need to do to improve it
While the lack of a sizeable down payment can be a barrier to buying the home of your dreams, your credit rating is also a significant factor. Your credit rating is how lenders gauge your suitability to lending based on how you’ve handled debt in the past. If you’re serious about buying your own home improving your credit score should be a priority. Let’s look at some of the factors that make up your credit rating…
Types of credit- Lenders don’t see all lines of credit as equal. Some can even be a ‘red flag’ for lenders. Commercial loans differ from student loans which in turn differ from credit cards. This is a fairly minor factor, but it accounts for 10% of the ultimate decision.
New credit- How much you want to borrow and the knock-on effect it has on your existing debts. This also accounts for 10% of your score.
Credit length- Even if you’re completely on top of your debts at the moment, a creditor will want to look further back into your history. If you’ve defaulted on any payments over the past few years, this could be a problem This accounts for 15% of your credit score.
Amount owed- This is the overall debt that is currently outstanding and it includes absolutely everything you’ve ever borrowed from student loans to credit cards. Understandably, it’s a significant portion of your credit score, making up 30% of the total. The size of the amount owed is a factor, as is how quickly you’ve paid it off. This is why selecting the minimum repayment option on your credit card is never a great idea.
Payment history- Ultimately the biggest deciding factor, making up 35% of your overall rating, lies in your track record of paying off your outstanding debts. Understandably, a history of being able to repay debts in a timely and consistent fashion is attractive to lenders.
Understanding your credit rating is the fastest way to rectify it. In many cases a consolidation loan is a great way of improving your credit score as it replaces your existing debts with a single monthly repayment. So long as you’re able to keep up with your repayments, it will be advantageous for your credit rating.
Saving your way to your new home
With your credit issues on their way to being resolved, now it’s time to focus on saving up for your down payment. Most lenders require a down payment of at least 10% of the property’s overall value but it goes without saying that the more you save, the more bargaining power you have.
Change your savings account
If you’re stashing a percentage of your wages into the same high street savings account you’ve had for years, don’t be surprised if you aren’t growing your money as effectively as possible. Most high street savings accounts still have pretty anaemic interest rates, typically hovering around the 0.06% area. Needless to say, it could take decades to save enough for a down payment on your home unless you change savings accounts. Try switching to an online account. Since online lenders have fewer overheads than high street banks, they tend to be able to offer better rates.
Supplement your savings with investments
Many savers are shy of investment because it represents a degree of risk, and while this is absolutely true, you can grow your money effectively while insulating yourself from risk if you supplement your savings with a stock portfolio. Just remember to keep your portfolio diverse so that you’re as insulated from risk as possible. While putting all your eggs in one basket may be tempting when a stock is doing well, it can create problems when its value begins to plummet.
Never underestimate the power of the side hustle
Saving can be hard when you work full time, as there’s only so much money you can make during the day. Fortunately, the digital age affords us more opportunities than ever to make money in our free time through the power of the side hustle. The beauty of side hustles is that there are so many out there, it’s easy to find one that suits your lifestyle, skills and the amount of free time you have. It can be something as creative as monetizing your blog or YouTube channel or selling your artwork on Etsy. Or it could be something as simple as using money making apps the next time you go on your weekly shop, or taking paid surveys. There are a great many side hustles that can make you a little extra here and there every day that can add up to make a big difference at the end of the month.
Move somewhere cheaper… Seriously!
If you’re really that unhappy renting, perhaps it’s worth renting somewhere cheaper as a temporary measure while you save for your new home? After all, your rent is inevitably your biggest expense and it can be extremely prohibitive saving when you’re paying exorbitant sums to your landlord every month. If you’re unhappy renting where you are right now, you may as well be just as unhappy somewhere cheaper for a little while.
The extra savings will be a powerful motivator to help you to save consistently and eventually purchase your dream home.