Get Your Finances Ready to Buy a House

Homeownership is a great way to invest in your financial future. Most people want to buy a home but are intimated by the upfront investment. There are many simple ways to get your finances ready to buy a house. Follow these guidelines to assure you are ready to make the leap into homeownership.

Set Up a Budget

The very first step in preparing yourself to buy a house is to set up a budget and stick to it. Living on a budget does not mean you are scrimping and can’t enjoy your life. It simply means you are aware of your income and expenses. You have a plan for the money you make.

Having a budget will allow you to know how much housing costs you can reasonably afford. It will also help you to set aside money to save for home-related costs. Living on a budget before you purchase a house will also prepare you for the financial responsibilities of owning a home.

Maintain a Good Credit Rating

Your credit report plays a big role on your mortgage application. When you start getting your finances ready to buy a house you should get a copy of your credit report. You can access a free credit report at www.annualcreditreport.com. Look over your report and make sure all information is accurate. If there are any discrepancies rectify it with either the creditor or the credit bureau.

It is preferable that you have a strong credit rating when applying for a home. Here are some tips to establishing great credit.

1- Always make your payments on time.

2- Do not max out revolving debt; keep balances less than 50% of your available credit limit.

3- Have a mix of revolving and installment loans.

4- Do not have too many revolving accounts open.

5- Make sure there are no delinquent loans on your credit report.

Save for the Costs of Buying a Home

Once you are living on a reasonable budget and have strong credit, you need to start saving for the upfront costs of buying a house.

Home purchase costs include:

* Down payment

* Closing Costs

* Earnest Money

* Appraisal Fee

* Discount Points for Mortgage

There are many loans that require a small down payment of only 3.5%-5%. There are also a few mortgage loans that allow a 0% down payment for eligible homebuyers. Along with a down payment, buyers should be prepared to pay for closing costs. It is possible to have the seller provide concessions to pay for closing costs, but you don’t want to lose a home because the seller is unwilling and you don’t have the money.

At the time of signing a contract, most sellers require an earnest money deposit of $1,000 or so. This allows the seller to understand that you are committed to purchasing this home; if you walk away from the contract for reasons that aren’t justified by the contract they can keep your deposit. If you continue with the contract your earnest money deposit will be applied toward whatever you owe at the closing table.

Some other upfront costs associated with buying a house are an appraisal fee and discount points. These are closing costs that you may want to pay upfront to avoid paying interest on them in your mortgage balance.

Account for Home Maintenance

Once you’ve purchased a home, you are responsible for all of the maintenance on your property. If there is a certain repair you know is coming up, start budgeting and saving for it. Even if there isn’t anything needed right away, you should be setting money aside. It is recommended to set up a separate savings account for home maintenance and repairs. You should be setting aside 1% of your home’s value each year. If your home is worth $240,000, save $2400 each year or $200 each month into this account.

Things You Should NOT Do Before Buying a House

1- Make a large transfer of funds. This will cause you to provide more documentation to your lender. They will need to verify where the money came from and that it isn’t a gift or loan from someone that doesn’t meet loan guidelines.

2- Switch your line of work completely. Most lenders like to see two years in the same job, but at least in the same line of work. If you are recently graduating and moving into a new career the lender will just want to see verification of your recent graduation.

3- Finance a big purchase. Buying a new car or putting a lot of money on credit can ruin your chances of being approved for a mortgage. Large sums of new debt come with large monthly payments. This will affect your debt to income ratio and possibly your application all together.

Preparing yourself financially to buy a house can be done without any headache or hassle. Email Carolina Money Minders today to discuss how home ownership fits into your financial goals.