The investment giant says owning a home is a smart financial decision.
- Warren Buffett is a reliable source of financial advice.
- He’s a homeownership advocate, and here’s how to make it happen this year.
There are different schools of thought when it comes to home ownership. Some people think that a house is a pure expense and involves risk. But others insist that a home is a solid investment. Warren Buffett falls into the latter camp.
As one of the most successful investors of all time, Buffett insists that if you plan to stay in the same area for a long time, owning a home pays off. Not only can a house provide stability, but its value can increase over time.
Buffett also called the 30-year mortgage “the best instrument in the world.” That’s because a 30-year mortgage gives you options. You can pay off your home over time and take out a mortgage to avoid tying up too much money in your home. And if mortgage rates drop after your loan is locked in, you can always refinance.
But owning a home is easier said than done, especially in today’s tough housing market. If you’re serious about buying a home in 2022, here are some key steps to take.
1. Boost your credit score
Buffett is a fan of the 30-year mortgage in part because it can be an affordable way to borrow. But if you want to increase your chances of getting the lowest possible interest rate on a mortgage, try to get your credit score in the upper 700s (or higher). This way, you’ll have a better chance of qualifying for the best rate offered by a given mortgage lender.
If your credit score needs work, make sure you pay all your bills on time and pay off some credit card debt, which could increase your credit usage. You should also check your credit report for errors – and correct any that could lower your score.
2. Improve your debt ratio
Your debt-to-income ratio measures how much you owe compared to what you earn. Like your credit score, this is another important factor lenders look at when deciding whether or not to approve mortgage applicants and what rate to give them.
Too high a debt ratio sends the message that you may not be able to meet the mortgage payments, and that’s not a message you want to send. You can reduce your debt-to-income ratio by paying off some existing debt or increasing your income.
Now, increasing your income doesn’t necessarily mean walking into your manager’s office and demanding a raise. That could mean getting a second job for a while – which, by the way, could make it easier to pay off existing debt.
3. Set funds aside for a down payment
You don’t have to put down 20% on a home you buy. But if you take out a conventional mortgage and don’t meet that threshold, you’ll have to pay for private mortgage insurance, an expensive premium that can make your monthly payments more expensive.
Now, it should be noted that we are starting 2022 with house prices at high levels. Prices could decline as the year progresses, especially if the housing stock recovers. But if the prices remain stable, it means that you will need more money than usual to deposit at the close. If you are able and willing to accept a temporary gig, it could help you earn more disposable money.
Owning a home could end up being a wise financial decision. But don’t just take Warren Buffett’s word for it. Consider your personal goals and determine if home ownership is right for you. And if you do decide to try to buy, follow these tips to position yourself for success.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.