Buying your first home is the biggest and arguably the most important purchase you will ever make. Preparing for that transition will require you to look at your finances in a different way. Keep in mind the following strategies to ensure your finances are in a great place when it’s time to buy your home.
Reordering Budgetary Priorities
To save for your home purchase, you’ll need to make the most of your budget. This may mean cutting back on certain expenses. Think about this as a temporary reorganization of priorities. When you move into your new home, you’ll be able to go back and create a budget that will work for you, having already achieved your homebuying goal.
Saving for the Down Payment
One of the most important financial factors in homebuying is the down payment. Saving enough towards your down payment amount can be crucial as it will ultimately dictate conditions, such as:
- Total amount remaining on the mortgage
- Interest rate
- Private Mortgage Insurance (PMI)
- Your overall monthly mortgage payment
The average homeowner paid 7% of their home’s price in the form of a down payment, rather than the traditional 20%. So, there’s no need to be dogmatic about your down payment amount. Consider your current financial situation, your personal timeline to move into your home, and how much you know you’ll be able to comfortably put towards a down payment. Your Mortgage Loan Originator will help you organize your desires and goals for homeownership to come up with a sound financial plan that works for you.
Getting Your Credit in Shape
Your credit score plays an important part in buying a home, so make sure it’s the best it can be. To ensure that your credit is in a good place before you buy a home, use a service such as CreditKarma or check your credit score using reporting from any one of the three major credit bureaus.
A good credit score will help you secure lower interest rates. This will lessen the amount you pay monthly and over the life of your mortgage.
Lowering Your Debt
When you apply for a mortgage loan, your debt-to-income (DTI) ratio is taken into consideration. How much current debt you have relative to your income will affect how much home you can afford and the interest rate on your loan.
Your best solution is to pay off, or drastically lower, any debt you have before applying for a mortgage. You may have to wait a little longer, but the wait will be worth it in the long run.
Saving up to buy a home may require some patience but once you get the keys to your new place, you’ll be glad you made the choice to break up with your landlord.
To learn more about how you can make your next home purchase as smooth as possible, read some of our best Homebuying Tips for soon-to-be-homeowners.