Managing finances in the proper manner can be difficult, especially when buying a new home is just around the corner.
Along with buying a new home comes many unexpected costs, and it can be difficult to do so if you haven’t created a savings fund. However, most americans struggle to save money each money even though they know the importance of doing when trying to buy a home.
Along with the importance of saving money when trying to buy a home, there are several other key rules to remember in order to make the process as easy as possible.
Here are the five most important finance rules to remember when trying to buy a home.
1. Keep an Eye on Your Credit
First and foremost, you will need to take out a loan in order to purchase your home, which means a good credit score will be extremely important to ensuring you are accepted for the home loan.
The first step to ensuring your credit is where it needs to be is to check your credit. When checking your credit, be sure to use a reputable website that is trusted. Otherwise, you risk not getting a reliable score as many of the sites differ, and some can even lead to a drop in your credit score when checked.
After checking your credit score, you should have a general idea about the prospects of getting a home loan. In the event your credit score is above average and in good shape, then you should be okay and won’t need to take any action towards improving it. With that said, it’s important to take precautionary measures to ensure your credit score doesn’t drop, such as creating a savings account and ensuring you always pay your credit off on time.
In the event your credit score needs improvement before you can get a home loan, be sure to pay off as much unsettled debt as possible and dispute any claims to your credit score that are inaccurate and harmful.
2. Find Out What You Can Afford
After ensuring your credit score is where it needs to be or putting into place a plan to improve your credit score if it isn’t where it needs to be, it is time to find out what you can afford.
The best way to find out how expensive of a home you can purchase, conduct a complete financial analysis, consisting of how much you make, your spouse makes, all expenses and how much it costs you to get out of debt. Generally speaking, a good rule to follow is your monthly home expenses – meaning mortgage, utilities, etc. – should not exceed a third of your monthly income. However, this number varies depending on your other expenses, which may include student loan payments, car payments, child costs, etc. Should you need help finding debt resources, sites like Get Out of Debt provide a wealth of free resources you can use to budget accordingly.
After deciding how much you can spend on a home mortgage and utilities on a per monthly basis, then you are ready to start the fun part, searching for a home that is right for you and your family. Be sure to stay disciplined and filter out any homes that are more than your target cost.
3. Get Pre Approved
After searching for your perfect dream home and deciding upon the one you wish to purchase, the next step to take in your financial journey that comes along with moving into a new home is to get pre approved. In essence, getting pre approved means that the bank has accepted you and verified that they believe you are able to make the monthly mortgage payments on the home, subsequently allowing you to purchase the home.
It’s best to get pre approved as early in the process as possible so you will have time to ensure you are qualified. In the event you are turned down, you will also be told exactly why, which will give you the ability to make improvements to the areas that are lacking.
After you are approved, the hard work is behind you and you are one step closer to moving into your perfect dream home.
4. Save for The Down Payment
A step that is neglected way too often during the buying a home process is saving for the down payment. When someone forgets to save for the down payment, they are at risk of losing the home completely.
Generally speaking, the down payment for a home falls somewhere between 3-5%. For example, the down payment for a home that cost $200,000 that requires a 4% down payment would be $8,000.
Although the number may seem scary, it is very doable as long as you give yourself time to save for the down payment. Be sure to set aside money each month into a savings account to ensure you aren’t unprepared for the scary downpayment on a down home. The best way to ensure you responsibly save money each month is to automate your bank account to where a certain amount of your paychecks go into your savings account, which is something almost all banks allow individuals to do.
5. Plan for Maintenance Costs
In an ideal world the process would be over after purchasing a home and making the down payment. However, there are still costs to plan for financially in the aftermath. Unfortunately, house do tend to need repairs or at the least you are likely to want certain repairs, such as landscaping and cleaning the air conditioning units.
Although it technically isn’t necessary, saving up money for maintenance costs is an idea that is highly encouraged. In the event you don’t mind doing your own landscaping and don’t care that much about the aesthetic appeal of your home, it is still important to have money saved up in case a major repair is needed down the road.
The best way to ensure you are able to handle maintenance costs down the road is to continue to save money the same way you saved for your home, which means continuing to place a certain amount each month into savings.
If you have ever financed a new home, share your experience, and any helpful advice you may have, in the section below.