Death and taxes are supposed to be the only guarantees in life, but if you buy a house you can’t afford, I guarantee you’ll be sorry! Before looking at your local real estate market you need to do your homework on your finances and see what money you have available for a new home.
Your Financial Situation
Look at your current financial situation, see where you money is going and how much free money you have at the end of each month. Once you see a pattern in your spending and savings you can better predict your ability to take on a mortgage. You should also be able to save some money for the hidden fees of home ownership, utility bills, HOA fees, repairs and maintenance.
Credit Rating
The first question you should ask yourself is, ‘What is my credit score?’ If you know you have bad credit the first thing you need to work on is getting your credit rating up. The only way to do this is to make sure you’re making timely payments on your bills and making arrangements with your creditors in the case that you’re having a brief period of financial troubles. These steps can increase your credit score and help make your financial troubles less troublesome.
Another simple step to correcting your credit report is by reading through your own report. Order a copy of your credit rating and read through it carefully. Many credit reports have mistakes on them, so be sure that you notify financial institutions of any mistakes you find. You can even use the free website CreditKarma.com to check your credit score for free.
Savings
Save up 20% of a home’s purchase price to avoid paying private mortgage insurance. Being able to save a large amount of money also shows that you’re ready to make the big payments that will come with home ownership. Home ownership is costly, many times a home will need repairs or upgrades to stop from causing further damage or problems.
If you’ve been putting money into a retirement savings plan the IRA allows you to borrow up to $10K for a first time home buyer. So if you haven’t been putting money into retirement savings, this is just another reason to do so. Even after you’re ready to make that home purchase it’s a good idea to try to put 3-6 months savings away in case of emergencies.
Mortgage Shopping
Don’t get a mortgage with the first financial institution that offers you a mortgage. Shop around and get quotes, make the bank work for your money, make sure that they’re not offering you a rate that is likely to break your bank account rather than enable you to stay on top of your payments.
Try to pick a mortgage with a fixed rate for the longest period you think you’ll be living in the home for. Although these rates are usually higher, they’re a safe bet. A variable rate means that from month to month the rate can jump up unexpectedly when mortgage rates begin to rise, wreaking havoc with your finances.
Ensure that you’re getting a mortgage that fits your needs. 30 year loans have lower monthly payments, this can help you pay down other debts if you use the savings to pay off other bills. If you know you’re less likely to save the money and put it on bills than consider a 15 year mortgage which will force you to save money because you’ll be putting it on your mortgage.
House Hunting
Start searching for a home once you’ve been pre-approved for a mortgage. Work with an experienced real estate agent to help you find a house you can afford. A real estate agent that works with your budget and helps you get a reasonable sale is a great asset, it also means you’ll be able to stay within your means.
During the house hunting process don’t be afraid to ask your realtor any questions, you should understand the whole process because it’s the biggest financial purchase you will ever make.
With these tips you’ll be ready to begin the home hunting process. If not, just keep working at paying off your bills and you’ll have that home sooner rather than later.
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