Buying a home may not be as far out of reach as you think.
Nearly three-quarters of renters say they would like to buy a house at some point, according to a new report from Pew Research Center. Two-thirds say they aren't renting by choice — they can't afford to buy a home right now or otherwise aren't in a position to buy.
Half of renters say their inability to afford a down payment is a major reason they rent, notes the report, and 38 percent say they don't think they can qualify for a loan. Nonwhites were more likely to cite financial reasons for not owning a home, Pew found. (See chart below for a breakdown.)
If buying is a goal, it pays to do some advance research to see how close (or not) you are to having your financial ducks in a row.
"The best homebuyers, the best borrowers, are the ones who come in prepared," said Dale Robyn Siegel, president of Circle Mortgage Group in Harrison, New York.
Here's how to get ready:
Depending on your location, the kind of home you're looking for and details of your financial situation, you may be eligible for homebuyer assistance from the government, a lender or a nonprofit, said certified financial planner Sissy Osteen, an associate professor at Oklahoma State University. You may be able to qualify for a loan with a smaller required down payment, or receive grant money to help you pull together that down payment.
Doing that research early on could help determine your timeline and shape your search, she said.
The Department of Housing and Urban Development maintains a list of state-based programs; you can also look for programs in a given area at Downpaymentresource.com, which tracks 2,400 offerings.
"The first question I ask is, 'What do you pay for rent, and is this a good number for you?'" Siegel said.
Use that gauge of a comfortable housing payment to work back and determine how much you can afford to borrow — which may be a lower number than the bank says you qualify for, she said. (To come to that monthly figure, don't forget to factor in housing costs that you aren't covering as a renter, such as some utilities and property taxes.)
That, in tandem with your down payment savings and eligibility for homebuyer programs, can give you a better idea of your property price range.
The better your score, the lower the rate you may qualify for. It's better to know early on where you stand, said Osteen.
"Start working on that," she said. "That could take months to improve."
It's easy to get a free look at your score — plenty of credit card issuers and monitoring sites will tell you where you stand. They'll also tell you which factors are dragging down your score, so you know what actions to take to improve it.
Get in the habit of regular savings, said Osteen. Even if you qualify for a program requiring only a small down payment, a bigger savings balance can broaden your buying and borrowing options. It'll also serve you well for new, unexpected costs as a homeowner.
Paying down debt can also be a smart move. Lenders look at your other debt commitments, like auto and student loans, when figuring out how much you can afford to borrow. Paying off credit card balances can also improve your credit score, Siegel said.