When you rent a home, you know that you can always move to a more affordable place when your lease is up. Your landlord will fix any repair issues that come up, and he or she may even pay some of your utility bills. Owning a home is a smart financial move in many cases because your monthly housing payments are accruing equity.
You may also benefit from more tax deductions. However, owning a home is also a huge financial commitment, especially if you need an American Standard dealer to help install or make repairs. And you may have more expenses to contend with in comparison to renting a home. With this in mind, it makes sense to get your finances in order before you seriously start searching for a home to buy.
Review Your Credit Report
Your monthly mortgage payment and the total cost of your financing over the life of your mortgage loan are directly linked to your interest rate. The interest rate that you qualify for is tied to your credit scores. Keep in mind that if your scores are too low, you may not even qualify for a mortgage. Now is the time to review your credit report. Fix any errors that you find. If you need to increase your scores, develop a strategy for doing so.
For example, paying down a few credit cards that may currently be maxed out may be helpful. Paying off a collections account can also potentially bump up your score. However, the paid collection account will still show on your report.
Establish an Emergency Fund
Before you take any additional steps to prepare financially for a new home purchase, take a quick look at your savings account balance. Do you have at least three to six months of your personal expenses saved? This should be a minimum amount of savings available to you that is not in an investment or retirement account. Remember that you may have to deal with unexpected repair issues when you own a house. Therefore, you may want to bump your savings account balance up even further before you make a new house purchase. Having an emergency fund also helps prevent the need for title loans online, which although very helpful in a lot of circumstances, are best kept to only emergency use like all forms of secured lending.
Pay Down Debts
When you own a house, it may be more difficult to pay down outstanding debts, such as student loans and credit cards. This is because your housing payment is fixed, and you may also have other housing expenses to contend with that you do not currently have. Now is the time to pay down debt balances. You may not need to pay them off if you are otherwise financially healthy. However, it is ideal to reduce debts to a manageable or even minimal level. Remember that an easy way to borrow money is to use credit cards when needed. Therefore, it may be wise to pull your credit cards out of your wallet so that you avoid any temptation to use them going forward.
Save for a Down Payment
Your emergency fund should be well-funded before you begin saving for a down payment. However, depending on your strategy, you may save for a down payment while also reducing your debts. You may find several low down payment loan programs available, and it can be enticing to apply for this. They provide you with an almost immediate way to get into a new home. However, it is wise to make a larger down payment even if it means saving money for the next year or two.
Remember that a larger down payment will create a smaller monthly mortgage payment. You will also have built-in equity, and this decreases the chance that you may find yourself upside down on your mortgage.
Reduce Your Expenses
You can save more money for your down payment if you cut back on regular spending. There are multiple strategies for accomplishing this goal. For example, you could stop going out on the weekend, cancel your gym membership and put a moratorium on buying new clothes for the next year or two. Another idea is to maintain the lifestyle that you have grown accustomed to and look for savings through fixed expenses.
For example, you may be able to save money by switching to streaming TV service or switching cell phone providers. If your car loan is almost paid off, make plans to drive it for a few more years rather than rushing out to buy a new vehicle.
Try the Mortgage Payment on for Size
After you have taken these steps, you may feel confident that you are ready to start looking for a new house to buy. However, one final step can help you to better decide what mortgage payment you can comfortably handle. Estimate the mortgage payment that you may have based on a reasonable sales price for your market. You can use an online mortgage calculator for a quick calculation.
Be sure to include monthly expenses for property taxes, insurance, repairs and more. Determine the difference between your future housing payment and your current housing payment. Sock away the difference in a savings account for the next three months. If you find that you cannot comfortably live with that high of a housing payment, it may be wise to look for a smaller house or to save a larger down payment.
Buying a house before you are financially ready to do so can result in unnecessary stress as well as financial strain. By walking through these steps, you can prepare your finances for the experience of buying a new home.