Getting Your Finances in Order
Get your finances in order to be ready to buy a new home. Begin budgeting for a first home before the house bug bites so when the market looks good, so will you. Follow four simple steps and it won't be long before you mark the milestone of your first house purchase.
Deal with debt and get your credit in check. While not necessarily a fun one, this is a fundamental step in budgeting for a first home. The good news is many homebuyers dread what this step entails but don't realize that dealing with these issues can be handled much quicker than imagined. Take time to straighten out any credit problems. Check to ensure credit reports are right. Call creditors to dispute any inaccuracies. Get your finances in order by lowering your debt ratio. Most lending companies don't want you owing more than around 37 percent of your income. So if the total monthly household income is $4,000, then the most the bank would want you to make in mortgage payments would be $1,480. But what if you have a monthly car payment of $500, student loan payment of $350 and credit card payments of $200? The monthly payments for those bills are applied to this monthly figure, essentially leaving you with only $430 for a house payment- not good. If possible, pay off credit card balances as they accrue. Call credit card companies and ask for lower interest rates. Taking a few moments to explain you're a loyal customer can result in lower interest rates, which means more cash in your pocket and one step closer to home ownership.
Save money. Saving money may sound like a no-brainer but in reality it is something that really does fall by the wayside in the lives of many Americans. The more money homebuyers put down when they buy a new home, the better the interest rate they get, the more amount of money the bank will loan them and the easier the whole process can be. Saving does not have to be complicated: saving money can literally start out with a jelly jar entitled “first house.” Banks and credit unions make it easy these days to save money before you even see it, so it's not even missed. Automatic transfers into money market accounts are just one way to squirrel away cash. Some financial institutions even reward smart savers by offering them monetary incentives after they've reached financial goals.
Add cash to the kitty. This step, while often overlooked, may be critical, to providing a way to buy a new home. While many people work for a living, it's also alright to work towards something. By taking a side job, freelancing on the weekends or moonlighting part-time, every bit of that money earned can go towards purchasing a home. Pay down debts and save money without having to dip into the funds needed to pay monthly expenses.
Begin with a budget. In order to get your finances in order, budgeting for a first home must become a priority. In order to see where the money goes and where you have wiggle room to take money from, track expenses for a month. After categorizing how much is money is spent on what, see where the belt can be tightened. You must set a fairly strict budget that you can follow. Be reasonable. A monthly $25 food budget may look nice on paper but your stomach may beg to differ. It may actually cost more when you splurge (like calling out for pizza because there's no food in the cabinets and you're starving) instead of just allowing a decent amount for each monthly expense. Allocate money for emergencies, extras and above all- savings. When you buy a new home, the unexpected has a way of happening so start budgeting like you already have that first house.
Budgeting for a first home may seem overwhelming so get help. Ask a friend and or trusted associate who is good with money to offer a little assistance: they'll probably be flattered and be that much more eager to help. Once you get your finances in order, buying your first house will be child's play.