$46k in debt > 100k net worth > buying a home
Today I want to talk about four things I did that helped me go from $46k in debt to $100k net worth to purchasing a home.
First, I focused on paying down my debt. I did this for a few reasons that will carry over into other things I will discuss, but in this part, we will talk about how reducing that debt lowered my minimums.
When I started paying my debt, roughly 30% of my income went to debt.
“That meant that 30% of my income was not going to any immediate need or savings.”
I spent time paying down that debt; over time, the percentage lowered as my minimums decreased.
Once my minimums were reduced, I still focused a lot on paying off that debt but also started saving. I invested through my work and my own and increased my net worth from -$46k to $100k.
Paying off my debt helped me save and increased my credit score. How did it help my credit score? The on-time payments and decreasing my debt/credit utilization helped bring my credit score up to where I would ideally want it to be before getting prequalified for a mortgage.
Once I had no debt, a $100k net worth, and an increased credit score, I saved 5% of what I was willing to spend on a home, plus additional funds for closing costs and a home emergency fund.
This took me about 3-4 years. I was unsure which type of mortgage I would apply for, so I wanted the 5% in the event I got a conventional loan. It was also important to me that I already had my emergency fund because you never know what can happen, and I wanted to be sure I was covered in case anything wild happened once I moved in.
The last thing I did, I can not stress enough how important this step is. I lived this past year as if I was paying a mortgage. What does this mean? I budgeted as if I was paying for a mortgage and included all the utilities that will be included now that I will not be renting. I made sure that I could comfortably afford homeownership and all that it entails while still being able to do the things I wanted to do.
As much as I want to be a homeowner, it was vital that I not compromise myself financially in becoming one, and this past year showed me I will be able to own a home and still afford to maintain my current lifestyle