When you’re preparing to buy a new home, it’s critical to review your personal finances and start saving as much as possible. But you don’t need to become a full-fledged accountant to save more and spend more wisely. In addition to creating a budget you follow every week or month, take a look at the ideas below to help you prepare financially for buying a home.
Get your debts under control. Pay down credit cards, student and auto loans, and other lines of credit. If you have many different debts, consider consolidating them into one monthly payment. Be sure to learn about the debt-to-income ratio (DTI) and how that impacts your loan approval. When determining how much you can afford on a monthly mortgage payment, remember that your monthly housing expenses (not including other debts) ideally should not exceed 28% of your gross monthly income.
Make sure you’ve saved for a down payment, closing costs, and other fees. Some loan programs may require you to put down 20% of the purchase price of the home, but many other loan programs require as little as 3% down — or even 0% down for those who qualify. Still, even a 3% down payment can be a sizable amount of money, so be sure you have funds available to cover it. You’ll also need to pay for closing costs, inspection and document fees, and, of course, moving expenses. If you want a better idea of how much these items will cost you, ask me for details.
Create a rainy day fund. Your home will need regular maintenance and upkeep. Aside from your down payment and closing costs, you’ll want to have a pool of money to pull from to cover repairs on your house. Homeowners should plan to spend around 1% to 3% of their home’s purchase price each year on maintenance costs. You’ll also have bills for electricity, water, internet, and other utilities to pay. Bottom line: Keep saving your cash!
Your financial health is just as important as your physical health. Carve out time each week to track your bills, review your statements, and keep an eye on your cash. You’ll have an easier time developing and sticking to a budget, and you’ll be ready to buy your new home before you know it!