How to Get Ready to Purchase a Home

houses-691586_1280Lately I’ve been thinking a lot about purchasing my first home. I have plans to get into real estate before buying my dream home and would love to get the ball rolling soon. The only hold up is there are quite a financial factors holding me back.

I’ve realized that purchasing a home is not the simplest process and it takes a ton of preparation. If you find yourself in a similar boat, here are 4 ways to prepare yourself to purchase a home.

Improve your Credit

Improving your credit is one of the best ways to prepare yourself to take out a mortgage and purchase your first home. If you don’t have good credit, you could be setting yourself up to lose a lot of money in the process of owning a home.

Minimum credit score requirement for a traditional loan is a score 650. If you are applying for an FHA loan, you may qualify with an even lower score. The only downside of having a credit score so close to the minimum requirement is that you will be subjected to a higher interest rate and more hassles throughout the application process. No one wants to deal with that.

It’s best that you get your credit score well over 700 in order to receive the best rate and terms. Check your credit score online and start monitoring your report in order to see if there are any discrepancies or disputes you need to file. If you use credit cards, be sure to keep your utilization low (below 30%) and try to avoid applying for new credit.

Pay Down Debt

Paying down debt is important if you want to be approved for a mortgage. I know it sounds unusual to pay off your debt just so you can obtain more debt through a mortgage, but lenders will examine your debt-to-income ratio to determine if you can actually afford the additional debt.

In the best case scenario, you should have no debt when you’re ready to buy a house, because it will be less stress on you financially and free up more of your income to cover other expenses. If you have debt like student loans, credit card debt or other loans, start putting extra money toward the balances each month and focus on eliminating your debt with the highest interest first.

Focus on getting rid of as much debt as you can before applying for a mortgage even if it takes you longer than expected.

Triple Your Savings

The reason why I say triple your savings is because owning a home can be expensive. You need to be financially prepared for any unexpected repairs or expenses that come up so you won’t have to go into debt again to pay them. The one thing I couldn’t stand about financing my car last year was that I was paying on my loan each month along with repairs and maintenance for my car. I imagine owning a home may involve some expensive months like that as well.

When you are in the process of obtaining your home, there are also several expenses like closing costs, inspection fees, etc. that you will have to pay as well so it’s best to build and maintain a large emergency fund so you can be prepared and have financial stability.

Learn How to Maintain a Home and Make Simple Repairs

The idea of maintaining a home scares me almost as much as the idea of saving up such a large down payment and going through the financing process. Once you own a home and have enough money to make your mortgage payments, you still have to consider the time and effort needed to maintain your home and do upkeep.

As a homeowner, everything will be your responsibility including landscape work, cleaning the gutters, and fixing anything in the home if it breaks. You won’t have the luxury of calling a maintenance person to come fix your window or your drainpipe for free once you own a ome. That’s why it’s best to become familiar with how to maintain a home and make simple repairs and perform routine maintenance checks.

The more you keep up with your home and improve your finances, the longer you will be able to enjoy it comfortably.

Do you own a home? If not, what is holding you back if homeownership is a future goal of yours?

Posted in: Home, Money

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