Image Source: Gus-Ruballo on Wunderstock
Buying your first home is a huge step in life. It’s also daunting. If you want to avoid being overwhelmed by your first home purchase, it’s important to prepare beforehand.
One of the best places to prep for your first home-buying experience is with your finances. Here are a few things to keep in mind to help you prepare your finances for the purchase of your first home.
Clean Up Your Finances
If you can’t keep your finances in order, it’s going to be difficult to afford your own home. Homeownership comes with a slew of various financial obligations, from paying the mortgage to making repairs to basic home maintenance.
If you want to buy your own home, start by elevating your finances, in general. For instance, if you don’t have a budget, create one. Even if you do have a budget, update it so that it’s focused on saving money and buying a home.
It’s also a good idea to embrace good financial habits. Set short- and long-term financial goals. Create an emergency savings account. Give to charity — and track it for your taxes. Basically, make sure you’re managing your money well and getting yourself in a good position to financially maintain a home.
Don’t Forget Your Credit
Your credit is one of the most important areas of your finances as you prepare to buy your first home. You only need a score of around 620 to get a mortgage, but if your score is over 740, you can qualify for much lower rates. There are many ways to increase your credit score, from paying off debt to lowering your debt utilization ratio and much more.
Get used to monitoring your credit score before you start house shopping. Credit scores can change by a few points as often as every day. While small shifts in either direction are fine, though, you want to make sure that your score is trending up as you approach purchasing a home.
Use Estimates as Upper Limits
When it comes time to apply for a loan, don’t let your monetary preparations take a back seat. Maintain firm financial control throughout the process.
This starts with sticking to reasonable mortgage limits as you determine how much home you can afford. When you get pre-approved, it’s tempting to use that as an average number to aim for. However, that doesn’t take into account other costs that come with your particular lifestyle.
It also doesn’t consider other home-buying costs, such as:
- Homeowners insurance and taxes
- Closing costs
- Upgrades and renovations
It’s much wiser to use your pre-approval as a very high upper limit to what you should spend. Compare mortgage pre-approval estimates to your budget, how stable your employment is, and other financial factors in your life. That way you can make a more informed decision when the time comes.
Stay Financially Flexible
Finally, you must remain flexible as you go along. You may not be able to be approved for as much as you want or you may find that you spend more on closing costs than you expected.
As financial curve balls come your way, stay ready to adapt. For instance, if the process of actually getting the home costs too much, look for ways to reduce future costs. Instead of furnishing everything right away, embrace a minimalist home design to get started.
Then, over time, you can slowly buy the furniture and decor you originally planned. Or who knows, maybe you’ll end up enjoying the benefits, converting to the minimalist gospel, and saving yourself a bunch of money, anyway.
Financially Prepping for Your First Home
Buying your first home is a big deal. It can also be financially overwhelming, to say the least. If you want to avoid digging yourself into a hole as you buy your first home, do your homework beforehand.
Clean up your daily finances, upgrade your credit score, and set a reasonable buying budget that you can manage. Above all, stay flexible throughout the process so that you can make wise decisions that leave you with healthy finances and a new home when all’s said and done.