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You Want to Buy a House – But You Need to Get Your Finances in Order First

By Myrl Jeffcoat

Real Estate Agent

September 17, 2010 04:59 AM

The current real estate market has provided homebuyers with a rare opportunity of finding homes at prices lower than they have been in years, plus mortgage interest rates are at record lows.

You have decided you want to buy a house. But you are wondering, "Can I?" You need to assess your finances and get them in order first.

The following points can help you with that:

Where is your money going? As a first step, it is important to identify where you are currently spending your money. How much on rent, your car, utilities, food, and other expenses, essential to your current living standard.
Identify discretionary spending. How much are you spending at the mall, your lattes, spa treatments, and items not considered necessities. This exercise will provide you will a keen view on possibilities for saving money.
Create a budget. Rely on your receipts to develop a family budget. This assists you in getting in touch with where your money has been going. Many folks haven't a clue where money has been spent.
What percentage of your income has been going toward housing or rent? The usual range is typically between 25% and 28%. Other monthly installment debt, your car payments, department store balances, and credit cards, etc., need to be reduced to between 8% and 10% of total income.
Can you generate more income? Some folks consider additional employment - either through a part-time or second job, to create more income to bring that total up to a viable level for mortgage qualification; or for a down-payment.
Good credit history is vitally important. Make certain you are current and timely on making payments to credit cards and all other bills. Consider paying extra, rather than the minimum each month to get those balances more quickly reduced, and/or paid off.

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Stephen Sainte-Martin

Realty Direct Boston - Boston, MA

Myrl:

Loved the content, thanks for sharing

Stephen

Sep 17, 2010 05:00 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Stephen - You're very welcome! I hope you can find it helpful!

Sep 17, 2010 05:06 AM

Harrison K. Long

HomeSmart, Evergreen Realty - Irvine, CA

REALTOR , GRI, Broker associate, Attorney

Myrl ... I like your post here to encourage buyers to get organized with their finances, establish essential facts, focus on guidelines for spending, setting priorities, and consideration of credit history. Thanks for this.

Sep 17, 2010 05:17 AM

Mary Yonkers

Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA

Erie/PA Real Estate Instructor

Myrl--great message for all who might be contemplating entering the market. Some professions like police have many opportunites for part time employment. I have a friend who take part time sales jobs during special events & the holidays.

Sep 17, 2010 06:03 AM

Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES

Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL

Florida Waterfront and Country Club Living

Myrl, this is good advice not only when thinking about buying a house but also in general just to get a good grip on personal finances. There are too many people who don't even know where their money goes.

Sep 17, 2010 07:18 AM

Stephanie Reynolds

Integrity First Financial Group, Inc. - Santee, CA

East County San Diego Homes 619-838-4408

This is great advice Myrl for EVERYONE! There are many banks that offer "track your spending" through online banking. It is an eye opening experience once you actually see where your money is going! Imagine how much money could be saved on an annual basis just cutting out daily coffee or eating out for lunch!

Sep 17, 2010 07:34 AM

Bruce Walter

Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Hi Myrl,

I enjoyed your pointers and I am tempted to print this out for my youngest daughter now that she has a job and college looming on the horizon. Excellent advise for anyone!

Sep 17, 2010 08:09 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Harrison - I remember formulating the plan years ago, when a number of buyers would show up in my office, no where near ready to buy financially. But after a little work, and a little time, they became ready.

Sep 17, 2010 09:32 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Mary - Although the current job market isn't the easiest to find employment for some, there can often be part-time opportunities since so many employers are currently reluctant to commit to a full time position.

Sep 17, 2010 09:35 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Silvia - You know you make a good point about that. Many young people have no idea about managing finances, and live paycheck to paycheck. Heck, a lot of Americns in general, are like that. A plan is a plan, whether you hope to buy a house or not.

Sep 17, 2010 09:36 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Stephanie - My own bank offers that "track you spending" asset. I haven't used it, but a couple of decades ago, it would have helped.

Sep 17, 2010 09:38 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Bruce - I wish high schools all taught personal finance as a required subject before graduation. I do think some schools present it, but likely not all to a degree it should be considered.

Sep 17, 2010 09:39 AM

Jeanean Gendron

The Address Realty - Redding, CA

Specializing in Selling Unique Properties

Mryl, I always leave this to the loan officer. I do sometimes go over it with First Time Home Buyers that ask "How Do I Buy a Home". This is a great list and I agree that printing it would be a good idea. I would just loose it in the mountains of papers in my office. I like it though! Solid! Bookmarked for future reference.

Sep 17, 2010 11:36 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Jeanean - I usually leave it to the loan officers too. However, I will sometimes have people who know they aren't quite there yet with being ready to buy a home, and I'll throw these suggestions out to them!

Sep 17, 2010 11:50 AM

Gary Woltal

Keller Williams Realty - Flower Mound, TX

Assoc. Broker Realtor SFR Dallas Ft. Worth

Hi Myrl, the prelim work definitely needs to be done prior to running around in the car doing the fun stuff of looking at homes.

Sep 17, 2010 02:27 PM

Jack Mossman - The Nines Team at Keller Williams in Stockton

The Nines Team At Keller Williams - Stockton, CA

The Nines Team at Keller Williams in Stockton

Myrl - This is so important, especially for agents that are less expereinced than others. Loading a buyer into your car - or meeting them at properties without knowing what and how they can buy ... is a recipe for disappointment. They may be able to buy, but the agent may be showing properties outside their purchase point - then all those homes they can afford ... are just too pedestrian! Thanks for sharing ...

Sep 17, 2010 02:40 PM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Gary - Too true! When I meet with a buyer for the first time, I have too things I cover first. (1) A question - "Are you working with an agent?" and (2) Getting them pre-qualified/pre-approved for a mortgage, so we know exactly how much house they can comfortably buy.

Sep 17, 2010 02:55 PM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

Jack - It's a waste of time and gas, to put folks into a car and taxi them around without having them prequalified first. I hope you have a great weekend!

Sep 17, 2010 02:57 PM

Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional

Charles Rutenberg Realty - Clearwater, FL

Palm Harbor, Dunedin, Clearwater, Safety Harbor

Myrl - this is a great summary of information that is vital to anyone intending on purchasing property! Hope they feature it!!

Sep 18, 2010 03:00 AM