Buying a home is one of the most important decisions in life and it would require a lot of planning and patience. A few months before you ever consider mortgage options for your home purchase, you’ll need to start to prepare yourself and your finances for your new home.
Here are 8 steps you can start taking today to getting your finances in order. Taking these steps earlier rather than later can save you a lot of time and potential frustration down the road.
- Develop a family budget: Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.
- Reduce your debt: Learn to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.
- Get a handle on expenses: You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.
- Increase your income: It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.
- Save for a down payment: Lenders today provide better rates to clients who provide less down on purchases. Refinances still remains very competitive amongst banks and brokers.
- Create a house fund: Don’t just plan on saving towards your down payment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.
- Keep your job: While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.
- Establish a good credit history: Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.