Resolutions For First Time Home Buyers
What better way to kick off the new year than by setting up yourself for financial success? This year, dedicate your 2019 resolutions to mastering your finances. Whether you’re looking in the near future or a little down the road, its critical to take the necessary steps to ensure that you end up in your dream home when the time comes. Here are a few simple steps to help you in your home buying journey this year.
Pull your credit report and check your score.
Your credit score showcases your financial responsibility and overall worthiness when it comes to securing a loan. Without good credit, you may be pinned with high interest rates when the time comes to evaluate your monthly mortgage payments. Creditors like to know you are responsible and trustworthy for that the amount of money they are lending you each month. They want to know it is going to be repaid. It’s a good idea to pull your credit and evaluate what is significantly impacting your credit score such as debt, utilization and new credit lines.
If you’re utilizing your entire credit limit, banks see that as a riskier option as opposed to someone who has a lower spend to credit limit.
Debt such as car payments or school loans also contribute to your spending power. Debt to income ratio or DTI is your monthly debts divided by your monthly income, and you should aim to remain below 40%.
*https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-why-is-the-43-debt-to-income-ratio-important-en-1791/Opening multiple lines of credit in a short period of time also represents a greater risk. If you’re one to be seduced by in store credit card deals, know that the rewards can be enticing, but the risk can be costly. The interest rates are often higher and the rewards are only beneficial for shopping in that store.
*https://www.forbes.com/sites/nickclements/2015/11/29/store-credit-cards-can-be-dangerous/#ac9eb47b99f0One thing to note, is that your credit does get dinged every time you pull it. One inquiry usually costs you about 10 points, which in the long run isn’t significant, but it's not something you want to do consistently.
Start taking proactive steps to reduce your debt, lower your utilization and to avoid establishing any new credit within a year of buying a home.
Evaluate your budget and eliminate the unnecessary.
The more you are able to invest in the initial down payment, the lower your monthly payments will be. We will go into loan payments more in the future, so stay tuned for what that consists of. Even if you may not have an excess of funds lying around, there are ways you can make small changes to your budget to help set you up for success down the road. Things such as avoiding the $5 morning coffee, meal prepping your food for the week, save dining/drinking out for special occasions, are all practical ways to save money. Knowing where your money goes is important and allows you to determine if those funds can be reallocated to growing your down payment fund instead. A personal favorite tool for budgeting is Mint. com, which allows you to establish your own monthly budgets, set financial goals and track your spending.
Get an agent.
Whether you’re looking to buy a home in your current city or if you’re wanting to to move across the country, it’s a great idea to establish a relationship with someone who knows the areas best. Quality real estate agents stay up to date on neighborhood trends and local statistics, they should the go to expert. Do your research in determining where you want to end up purchasing a home and then find an agent in that area who aligns with your goals and values as a homebuyer. It’s never too early to reach out to a real estate agent to begin developing that genuine relationship and to help them get to know you and your home-buying goals for the near future.
*Important: I am not a lender, financial adviser, or expert in this field. I simply mean to convey what I have found helpful in the world of personal finance and real estate. It is crucial that you consult an expert before making any financial decisions.