9 Steps To Get Your Finances in Order Before You Look For a Home

Assessing your finances before buying a home is a crucial step to ensure you are financially prepared to pounce on your dream home. Here are some essential steps to take before you begin your real estate journey:

• Review your credit score: Obtain a copy of your credit report and check your credit score. Lenders use your credit score to determine your eligibility and interest rates for a mortgage. Aim to have a good credit score before applying for a home loan. Take note lenders also have their own methods of assessing your credit but this will give you an idea of where it is and if you need to improve it.

• Calculate your budget: Determine how much you can afford to spend on a home. A general rule of thumb is that your mortgage payment should not exceed 28% of your gross monthly income. Consider other costs, such as property taxes, insurance, utilities, and maintenance when creating your budget.

• Save for a down payment: Determine the amount you can afford to put down as a down payment. While some loans allow for smaller down payments, putting down 20% or more can help you avoid private mortgage insurance (PMI), improve your mortgage terms, and make your offer more appealing to buyers.

• Assess your debt-to-income ratio: Lenders look at your debt-to-income (DTI) ratio, which is your total monthly debt payments divided by your gross monthly income. A DTI ratio of 43% or lower is generally preferred by lenders. Some debts the lender will consider may be mortgage or rent payments, car loan payments, student loan payments, personal loans, and credit card payments. (CLICK HERE TO LEARN MORE ABOUT CALCULATING YOUR DTI)

• Build an emergency fund: Before buying a home, ensure you have an emergency fund in place to cover unexpected expenses. Having three to six months’ worth of living expenses saved up is a good goal.

• Consider additional costs: Factor in closing costs, moving expenses, and any initial home improvements you might need to make after buying the property.

• Shop around for mortgage rates: Compare mortgage rates and terms from different lenders to find the best deal for your financial situation.

• Get pre-approved for a mortgage: Approach different lenders to get pre-approved for a mortgage. This process will provide you with an estimate of how much you can borrow and what your potential interest rates will be.

• Consult with a financial advisor: If you’re unsure about any aspect of your finances or the home-buying process, consider seeking advice from a financial advisor who can help you make informed decisions.

By thoroughly assessing your finances and ensuring you are financially ready, you can proceed with more confidence in buying a home that suits your needs and budget.