How to Prepare Your Finances for Homeownership After a Hiccup
Buying a house is a huge step, and it is one that requires you to be financially healthy. If homeownership is in your near future and you’ve experienced a setback, preparation is the key. Yellow Rose Realty shares how you can learn how to improve your credit score, eliminate debt, and elevate your assets so that you achieve a stronger position for house hunting in a matter of months.
Check Your Credit
When it’s time to buy a house, your credit score is a very important number. Traditionally, for an FHA loan, you need a score of at least 580 to qualify for a lower down payment. It is possible to make your purchase with a lower credit score, but you’ll be required to put more money down, and your lending options may be fewer. A credit score of 700 or higher is ideal.
To improve your credit, start by pulling your credit report. You can do this through one of three companies: Experian, Equifax, or TransUnion (or all three). Next, take steps to pay down your debt. This will lower your DTI, or debt-to-income ratio. Paying your bills on time and avoiding taking out new lines of credit leading up to homeownership will also improve your credit score.
You might be surprised to learn you can purchase a home in the wake of bankruptcy. Whether you’ve suffered a personal or professional financial setback, there are options out there. And if you’re looking at possibly filing bankruptcy, connecting with a knowledgeable attorney is a terrific first step towards getting your financial picture back on track.
Manage Your Money
As your credit score recovers, it’s time to pay closer attention to your current financial situation. A great place to start is by using a loan calculator to determine how much you can afford without overextending your budget.
Once you have established a comfortable price range, start thinking about saving for a down payment. Ideally, you already have funds set aside, but if you don’t, it is not too late. You can open a dedicated savings account for your future home purchasing endeavors.
Aim to have at least 10 percent of the purchase price, plus closing costs and moving expenses, in cash by the time you’re ready to make an offer. So, if the home sells for $200,000, you’ll want to have a minimum of $20,000 for the down payment plus approximately 3 percent for closing and whatever moving expenses you plan to assume.
A few ways to save money include eliminating extraneous expenses, such as premium cable services, tanning bed visits, and dining out. By skimping on the non-essentials, you can channel your cash into your future.
Keep in mind that once you’re ready to shop for a mortgage, you may be able to lower your monthly payment by paying for points, which involves paying a fee to your lender when you close to get a lower interest rate. Paying for points may not be a prudent investment if you’re not planning on staying in your home long term, so use a mortgage points calculator to determine if this option makes sense financially.
Know What You Are Getting Into
Making sure you have good credit and enough cash in hand are both crucial in the home buying process. So too is understanding what, exactly, you’re getting yourself into. Being a homeowner is a huge responsibility, and there are many additional costs associated with keeping up your new property. Taxes, insurance, and home maintenance don’t come cheap, so do your research in your price range. You should also know that older homes tend to cost more to upkeep and homes within city limits usually have higher taxes.
Owning your own home is a huge milestone in your adult life. But it is not a natural progression, such as falling in love or watching your hair turn gray. It requires planning and dedication to make it happen, but with the right steps and assistance, you can achieve your dream.
When you’re ready to find your dream San Antonio home, connect with the skilled and dedicated real estate professionals at Yellow Rose Realty! Call 210-664-3500.