Thinking about buying a new home this year? Your first step\nis getting your finances ready for this major purchase. Your finances play an\nimportant role in your ability to buy a home so it\u2019s smart to start working on\nthem as soon as possible. Here are the top steps you can take to prepare your\nfinances to buy a new home this year.<\/p>\n\n\n\n
Your credit score, a three-digit number scoring your ability to pay a debt, is an incredibly important number. Your credit score will determine the types of loans you\u2019re eligible for and your interest rate. In short, the higher your credit score, the more likely you\u2019ll qualify for different loan programs and more favorable interest rates.<\/p>\n\n\n\n
Request a copy of your credit report (everyone is entitled\nto a free credit report from each of the three major credit bureaus \u2013 and\nrequesting a report will not affect your credit) and carefully review it for\naccuracy. Report any mistakes as soon as possible.<\/p>\n\n\n\n
Continue making on-time payments on your monthly bills and keep your credit utilization ratio low. Ideally, you should keep that ratio, which is how much you owe on your cards compared to your spending limit, to about 30% or lower. Also hold off on opening new credit accounts, which will temporarily lower your score.<\/p>\n\n\n\n
It can take several months to see any changes in your report\nso the earlier you start working on this step, the better.<\/p>\n\n\n\n
Your debt-to-income (DTI) ratio is the percentage of your monthly pre-tax income used to pay bills. Lenders use this ratio to make sure you\u2019re able to afford your proposed mortgage.<\/p>\n\n\n\n
Your DTI is calculated by adding your current monthly debt\npayments (e.g., student loans, car loans, credit card payments, etc.) and then\ndividing by your gross monthly income (before taxes and dedications are\nremoved).<\/p>\n\n\n\n
If your DTI is on the higher side, work on paying down as\nmuch debt as possible and slow down credit card spending. <\/p>\n\n\n\n
There are a lot of factors to consider when determining how\nmuch you can afford. Lenders will review your financial history and current\nincome and debts to determine how much they think you can comfortably afford.\nBut it\u2019s important to do your own calculations as well. Remember, there\u2019s more\nto owning a home than just paying your monthly mortgage. You should also take\ninto account home insurance, property taxes, utilities, and maintenance costs. <\/p>\n\n\n\n
You don\u2019t have to borrow the full amount offered by your\nlender. Stick with what you feel comfortable spending. Take a look at your\nbudget to figure out how much you can comfortably afford. Home affordability\ncalculators are good for estimating your personal number as well. Knowing what\nyou can realistically manage will set you up for success. <\/p>\n\n\n\n
As you work on paying down debt, create a budget for your new home. This should include some of the upfront costs you can expect to provide including earnest money, down payment, closing costs, homeowners\u2019 insurance, and an emergency fund.<\/p>\n\n\n\n
Make saving easier by setting up automated transfers into a\nseparate savings account. You can funnel windfall income like bonuses, cash\ngifts, or tax refunds into your savings as well.<\/p>\n\n\n\n
Once your financial ducks are in order and you\u2019re ready to start looking at homes, meet with a lender to get preapproved for a mortgage. The preapproval process is an in-depth investigation into your financial history. Lenders will review your credit report, income, assets, and debts, and verify employment and income among other things. At the end of the process, you\u2019ll receive a document outlining the full amount you\u2019re eligible to borrow.<\/p>\n\n\n\n
While being preapproved isn\u2019t a guarantee of having secured\nfinancing, being preapproved lets sellers know you\u2019re a serious buyer. It\u2019ll\nalso help you be prepared to make an offer when you do find the home you love.<\/p>\n\n\n\n
Buying a home doesn\u2019t happen quickly; it takes research,\nplanning, and careful consideration to make sure you\u2019re making the best\ndecision for your family.<\/p>\n\n\n\n