Let’s be honest — house hunting isn’t always as exciting as television often makes it out to be. While moving day is laborious, long, and often frustrating, the truth is that new homeowners have already completed the most difficult steps by the time they start packing up the truck.
If you think the first steps in buying a new home involves scoping out suitable neighborhoods and finding a home you like, it’s time to take a step back.
Before you get to that, you need to lay a solid financial foundation so your home purchase goes smoothly. The following strategies are good ways to do so:
1. Be Smart About Credit
If you’re going to finance your home, you’ll almost surely need a suitable credit history. Chances are your mortgage company is going to look at both your FICO score and your credit score from one or more of the top three credit reporting agencies.
For the best results, follow these suggestions:
2. Track Your Debts
While the purchase price of your home is the largest expense of the process, it’s only the beginning. You’ll also need to figure in the cost of maintenance, home repairs, insurance and more.
Be realistic about the debts you already carry and the amount of money they claim from your income every month. Work to eliminate those debts that can place a burden on your financial health. Medical payments, credit card balances and other bills can chip away at the income you can use for your home. Try to pay these obligations down before you apply for a loan.
3. Don’t Make Any Large Purchases
If you’re in the market for a new home, it’s important to stay focused on that objective. Now is not the time to purchase the dream car you’ve always wanted or to open up a new credit card so you can furnish the home you anticipate buying soon. These actions will be blemishes on your credit report, and could make the difference between getting approved or denied for a mortgage.
4. Understand Your Income and Cash Flow
Understanding your income and cash flow starts with a budget. Recording the amount of money you have coming in every month, as well as the amount that’s committed to bills, provides an accurate snapshot of your financial health.
Armed with this information, you can modify your spending habits to make sure they help you meet your goals. In the process, you’ll be able to use your money in the ways that are most reflective of these goals.
The object is to always spend less than you make.
5. Get Pre-Approval
It can be tempting to skip the pre-approval process, but it can be worth it in the long run.
Think of this step as a trial run in terms of getting approval for your mortgage. You’ll fill out pre-approval paperwork with most financial institutions requiring that you furnish financial statements in order for your application to be processed. Not only does pre-approval give you an accurate baseline amount to work with when it comes time to find a home, but it can also give you an edge over other interested home buyers who competing for a home you want but who aren’t already pre-approved.
By following the five steps outlined above, you can build a solid foundation that will make it easier to purchase the home you want. As you might expect, the above process isn’t something happens overnight so plan to start at least six months before you plan to purchase a house.
Regards,
Ethan Warrick
Editor
Wealth Authority
