Getting your finances in order and planning ahead will prepare you for purchasing your home; possibly one of the largest investments you will ever make. Long before you make an offer on a home, or your dream property, know what you can afford to pay for housing costs, accumulate enough cash for pre-purchase expenses and make sure your credit history and score is attractive to lenders.
So your first step is to get your finances in order. The higher your credit score is, the easier it will be to qualify for a mortgage. Determine a comfortable monthly housing payment. Many people jeopardize their financial security, by over estimating the amount they can realistically handle.
Determine your cash flow. Then list your monthly expenses and subtract that figure from your monthly net income. If you’re like most people, you’ll need to track your spending habits for at least a few months to be accurate.
Your mortgage payment and all other housing costs should fit easily into your budget. Keep in mind the larger the home, the more you will need to figure in your utility expenses and maintenance on your home. Figure in all housing costs, such as your mortgage, property taxes, homeowners insurance, utilities and upkeep of yard, land etc.
To access your scores, either purchase them as you get your free reports from Annual Credit Report Request service, or pay for them when you buy your reports from the credit bureaus:
Equifax - www.equifax.com/ 800-685-1111
Experian – www.experian.com/ 888-397-3742
TransUnion – www.transunion.com/ 800-916-8800
If the information on your credit report is negative, but accurate, take action right away to improve your credit. Delay your home purchase until your credit report looks positive to lenders. You can make a major difference in your credit score in as few as twelve months by using credit regularly, paying all of your accounts on time, repaying any old debt or collections you may have and keeping balances zero or well under the credit limit.
Save for pre-purchase expenses. Before you buy, you will need enough cash for a down payment, closing costs, and a few months worth of mortgage payments in reserve. Consider extras like moving costs, repairs and any new furniture you may need to purchase. Once you have all of your credit and financing in order, you are set to start your property search.
In most cases, the down payment is your biggest expense. While putting down 20% of the purchase price down, may or may not be required, the more you pay down, the less your mortgage payment will be and the better loan you may get. If your down payment is less than 20% you may have to purchase mortgage insurance until you build up the 20% in home equity or obtain a second loan to cover the remaining 20%. Closing costs are often between three to five percent of the purchase price.
Above all it is crucial that you do your research before buying your new home. Choosing the right real estate professional is key to finding and purchasing the home of your dreams. Whether if it’s your first time home, your forever home or a vacation retreat, the right real estate pro can not only help you get ready, but negotiate the best deal and help you navigate through financing, contingencies and closing. The best investment in buying a new home is choosing the right real estate professional to help you.