How to Get Your Finances Ready for Buying Your First Home
Buying your first home is a major milestone in your life. Not only does home ownership give you a sense of pride and belonging, it offers a way for you to build wealth.
If you’re thinking about purchasing your first home, you’re in good company. Each year, millions of people buy and sell homes.
When you purchase your new home, it’s likely that you’ll spend over $100,000 for it. You’ll need a substantial down payment for closing costs, and you’ll have to pay other expenses including home inspections, HOA fees and moving costs.
It’s never been a better time to start preparing to buy your first home. Unless you have a large nest egg, you’ll have to take steps to get your finances in order. Here’s what you’ll need to do.
Check Your Credit Score and History
Your personal credit history will determine if a bank approves you for a loan. Depending on the lender and type of loan, you’ll be required to have a minimum credit score of 620 points.
While it’s true that there are programs that may allow you to get approved for a home loan with a lower credit score, these types of loans usually offer higher interest rates. It’s a good idea to boost your credit score as high as you can before you apply for a mortgage.
Review your credit history from the three major credit bureaus – Equifax, TransUnion and Experian. If you notice any derogatory information, address it as quickly as possible.
Pay off any debts from collection agencies or charged-off accounts. Keep your current accounts in good standing. Continue to take care of your credit.
Save Money for Closing Costs
You can expect to pay from 2 to 5 percent of your new home’s purchase price for closing costs. If you purchase a home that’s priced at $200,000, your closing costs could range from $4,000 to $10,000.
Some sellers provide financial help with closing costs. However, you should try to save as much of the money as you can. Not only will saving the money improve your financial discipline, you’ll be able to take advantage of more home-buying opportunities if you have the money for closing costs.
One way to save the money is by starting a side business or getting a part-time job. By earning additional money, you can accelerate your home-buying process.
Make Saving Your Money a Priority
Owning a home requires you to pay for various expenses. Unlike renting an apartment, you’ll be responsible for repairing and replacing broken appliances. These expenses can add up.
You must make saving your money a priority. When you have money in your savings account, you won’t have to worry about missing a mortgage payment because of a leaky roof, furnace repair or a major car expense.
Review Your Budget
It’s important for you to determine if you can afford to buy a new home. That’s why you should review your budget to calculate your current income and expenses.
Here’s something that you should know. A mortgage company may approve you for a loan that is priced at the upper limits of your budget. But that doesn’t mean you should agree to it.
Having an expensive home is nice – if you can afford it. Resist the urge to purchase a home with a large mortgage that you can’t afford. There’s nothing more stressful than trying to figure out how you’ll be able to pay your mortgage every month.
If you’re like most people, buying your first home is the fulfillment of The American Dream. To keep your dream from turning into a foreclosure nightmare, you should take steps to prepare for this huge financial obligation.