10 steps we’re taking before buying a home

 1. Completing homebuyer education.

If you’re looking to buy a home for the first time, I highly recommend checking out homebuyer education programs in your state or area. Many states offer incentives and special programs for first-time homebuyers who meet certain income requirements, and the USDA Rural Development also offers programs for low-income individuals. The program in our state also includes one-on-one first-time homebuyer counseling, which can help individuals and couples better prepare for this life-changing financial event.

2. Tracking our spending.

Truth: This is something that is really difficult to start doing. But once you do start—I promise—it does get easier. I recommend using pen-and-paper methods, and then entering the purchases into a spreadsheet later. If you have a partner, both of you should be tracking as a “unit.” The physical act of writing each and every purchase down keeps me accountable and more aware of what I’m spending on. It becomes a habit if you do it consistently, and you may actually find some satisfaction in the ritual itself.

3. Identifying “problem areas” of spending and addressing accordingly. 

Patterns will emerge once you begin tracking your spending. I found that was spending $25-$40 a week on workday lunches. My office building has a cafeteria which is extremely convenient (and delicious), but their food isn’t cheap. I’ve willfully banned myself from buying lunches out, including my beloved Panera and Chipotle—at least for now, I’m committed to bringing food from home DAILY. I still allow takeout once a week and dining out once a week. It makes the times I do eat out more special, and is an easy category to cut back on, especially if you’re ok with eating leftovers!

4. Stalking my credit reports/score. 

We learned in homebuyer education that the “magic” credit score to open the doors for eligibility for mortgage lenders is 640. Mine is somewhat above that (thanks to a lot of hard work). I keep track of my score via Credit Karma, which is a handy site/app that gives a well-illustrated snapshot of your credit and provides weekly updates and notifications of changes to your credit score. One con is that Credit Karma only pulls from two of the big three major credit bureaus (Equifax and Transunion), so for Transunion, you can always pull from AnnualCreditReport.com, which directs you to each bureau to request a free copy of your report (does not include your score). It seems like a no-brainer, but you’ll want to comb through your reports to ensure everything looks correct, and resolve any disputes well before applying for a mortgage—doing so right before your lender pulls your credit will actually cause your score to drop.

5. Avoiding applying for ANY new credit. 

Applying for new credit is always damaging to your credit score. Hard inquiries can remain on your credit report for up to two years. A single credit card may not be too bad, but what can really hurt is applying for an auto loan. A few years back, I traded in my failing car for a “new” used car, going from loan-free to having a monthly auto loan payment. Three months later, I was rear-ended and my new car was totaled, forcing me to apply for another auto loan. Typically dealers will apply on your behalf to several lenders, seeking the best interest rate. Each inquiry to each lender will lower your score a bit. If your car is in working condition, try to keep it until you are in your new home. If you desperately need new wheels, consider buying a cheaper used car in cash, or going through a credit union for financing to avoid multiple hard inquiries.

6. Keeping my oldest lines of credit active/not closing any credit accounts. 

Keeping lines of credit open is key for healthy credit. In general, the longer you’ve had an account, the more of a boost it gives your overall score. Lenders look for average length of credit when viewing your creditworthiness, so it behooves you to maintain older credit accounts, even if you use them infrequently or want to close them. Once you’re in your new home, you may want to gradually close accounts one at a time or let them inactivate on their own, but as you’re preparing to apply for that mortgage, keeping your accounts active is usually the best option.

7. Watching my utilization ratios like a hawk. 

When it comes to credit, ratios are key. When assessing creditworthiness of potential borrowers, lenders want to see that you can use credit responsibly. Ideally, you should only be utilizing 10% of your total available credit in revolving accounts. That means if your card has a limit of $1,000, you should only “use” about $100 of that. This can be difficult to accomplish, but remember: don’t be afraid of high credit limits. If a lender raises your spending limit, that is ultimately a good thing, because it automatically decreases your utilization—just be careful not to turn that available credit into debt.

8. Saying no to things I love that cost a lot of money. 

This one is painful for me because it includes two things I’m passionate about: travel and getting tattooed. These “expensive hobbies” are being set on the back burner until we get into our new home. Travel is an important human experience and something I want to do as much as possible, especially before I have a family to look after. I’ve tried to approach this with my partner and see if we can plan a “lite” vacation or a small getaway next year, but he’s been firm in our need to buckle down and focus on saving for the house instead. He is, of course, right. We are on the low-income spectrum (very much working class, not middle class) and we’ll need as much as we can in liquid funds to cover expenses. So…I’m (grudgingly) postponing any travel and tattoo plans for the foreseeable future.

9. Sitting tight in my current job, even though it won’t be my lifelong career. 

While a new career with a better salary may make mortgage payments easier to manage, lenders are looking for stability when determining what to give you for a mortgage—this is especially true as a first-time homebuyer. Lenders are always assessing risk, and one of the easiest ways to do that is by looking at your employment. They’ll want pay stubs to prove your income, and being at your current job (at least within the same organization) for 3+ years is ideal. A job or career change may not be a deal breaker, but it will weaken your position as a first-time homebuyer. There are times where a job change may not be an option, but if possible, it’s best to sit tight until you have closed on your new home.

10. Editing my possessions. 

Two years ago, I read Marie Kondo’s viral book, The Life-Changing Magic of Tidying Up. While I didn’t exactly follow her all-at-once declutter style, her book DID bestow on me the important question to ask myself when regarding my “stuff:” Does this spark joy? Another question I also ask: Is this useful? If they both are met with “no,” I eliminate it without further questions. I’ve yet to regret an item I’ve decluttered. Less is more, especially when packing and moving. In our consumerist society, we tend to accumulate more possessions the longer we are in a place. I plan on doing myself a favor and beginning my tenure in my OWN home with only things that bring me joy.

Are you on a journey to become a homeowner? Have you already bought a home? If so, what advice would you give to first-timers (like us)?

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Money talk: Donating $ while in debt

When Hurricane Harvey ravaged southeastern Texas, one of the first things I thought was, “what about the animals?” Household pets, livestock, and wildlife were lost, abandoned, or even killed by the effects of the storm. As an animal lover, it hurt my heart knowing that innocent animals were suffering. From 2,000 miles away, I was compelled to put my money where my heart was, so I donated to a national nonprofit whose efforts were going to help displaced and homeless pets affected by post-Harvey flooding. My donation was modest; my income and debt levels don’t support the ability to give large amounts (I graduated this year with over $40,000 in student loans). But it still felt wonderful to be able to say I did something, especially when I couldn’t actually “do” anything.

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After submitting my donation, casually mentioned it to one of my older family members. His response: “When you squeeze your budget to live within your means and attack your debt, you may discover that donations are a luxury you cannot afford!” Mind you, this family member is from a different generation—one that didn’t use credit, and was raised to believe that if you owed money, you paid it back before “just giving it away.” Like many other millennials, I live in the shadow of student debt. I also spend some money on occasional meals out, a leather handbag, and way too many lipsticks. “Frivolous spending” is something most of us are guilty of, even when we carry debt burdens and earn modest incomes. But when we give our money to a cause or organization we believe in, our mindset shifts: no longer is it a purchase or expenditure we’re apt to later regret (added to our waistline or as clutter in our home), but an unselfish, intentional investment in something that actually matters.

“Tithing” (donating 1/10th of one’s earnings or belongings is a part of the Old Testament, and many religions believe that consistently giving to one’s church or charity should be a priority, even in times of financial hardship. I’m not religious, but I do believe that giving is still important, but should be adjusted to your personal situation. Ten percent is a steep number if you’re only making $35,000 a year—about $290 a month. That amount could be better spent applied towards some of your debt burden. But what about $10, $25, $50? These can be allocated into your actual budget, alongside your groceries and utilities. “Smaller” donation amounts aren’t going to make or break you financially, and that intentional spend goes toward something that’s not only relevant to you, but also benefits the community/country/world as a whole. A $20 donation to the World Wildlife Fund may not “do” much on its own, but it represents your charitable intentions and backs a cause you believe in. It also supports a healthy habit of giving and generosity, which can grow as your income grows and debt burden decreases.

Some personal finance writers are adamantly against giving while carrying any kind of debt burden. As far as I’m concerned, there is a significant difference between donating money when you’re living off of credit cards (bad) and doing so when you are living reasonably within your means and chipping away at debt (good). Not giving any money to charity is a Scrooge mentality, and does not align with the type of person I want to be. Giving to those less fortunate or advocating for causes like the environment and animals is and always will be an important part of who I am.

It is also important to remember there are other ways of giving than donating money. We can donate clothing, shoes, books, and household goods to organizations like Goodwill. We can give old blankets to an animal shelter. And of course, perhaps the most valuable of all donations, is that of time—which for me personally, is more difficult to part with than actual cash. So many organizations are in need of volunteers—if you can’t give financially, then consider giving the gift of your time.

If we postpone giving for when we (or if!) are completely debt-free, we could be spending decades of our lives not giving. And if we choose not to give, we’re ultimately doing ourselves a disservice by not living with intention.

What are your thoughts on charitable giving with debt? Tell me in the comments below!