8 money moves to get your finances ready for homeownership
Buying a house can be an intimidating process – particularly if your finances aren’t right. But by taking the time to get your financial house in order, you’ll be ready to show any lender you’re on top of your game.
Not sure what money moves you should make? Read on and take it step by step.
Do your homework
Financial education should be at the heart of any homebuying plan. Do you know what lenders are looking for from potential homebuyers? Do you know what credit score you need or how much money you should have in the bank? It’s ok if you don’t know — you can’t be expected to know everything. That’s where a homebuying class comes in handy or how a Homebuying Advisor from a nonprofit homebuying organization like HomeFree-USA can be helpful. Once you know what lenders expect of you, you can make sure you meet those requirements.
Set yourself up to get free money
Here’s another reason why you should work with a nonprofit organization like HomeFree-USA: they can let you know about programs that provide financial assistance to homebuyers. You also may qualify for financial assistance by taking a first-time homebuyer’s class. You may be able to get downpayment help or money to go toward your closing costs. Even if you’ve already saved enough money for a downpayment and closing costs, wouldn’t you rather keep that money in your bank account or use it for something else?
Find out where your credit stands
Your credit score can make all the difference in whether your mortgage application is approved or denied. You can get a free copy of your credit report from AnnualCreditReport.com. You can also get copies of your credit score from the credit bureaus Experian, TransUnion or Equifax, or from MyFico.com. Your bank or credit card issuer may also allow you to monitor your credit score for free.
Take steps to improve your credit
Once you know your credit score, you can put all of your energy toward improving it. There are a number of actions you can take that will make a difference. Among them:
- Make sure you pay all of your bills on time. Have your bill payments automatically deducted from your checking account if you have trouble remembering to pay.
- Check for mistakes. Sometimes there are mistakes on your credit report that cause your credit score to drop. · Get help from a Homeownership Advisor. Contact HomeFree-USA and a Homeownership Advisor can help you come up with a plan to improve your credit.
Find creative ways to save
Having savings in the bank can also come in handy when you’re buying a house. Even if you get downpayment assistance and don’t need a lot of cash to close, it’s helpful to have money in case something comes up that you didn’t expect. Also, lenders like to see some cash reserves in your bank account so they know that you would be able to handle an emergency if one came up.
Come up with a plan for your debt
One of the best things you can do is eliminate as much debt as possible. If you have no debt, good for you. Try to keep it that way, at least until after you buy your house. If you do have some debt it’s ok. You may still be able to buy a house but you’ll be in a better financial situation the less debt you have.
Estimate future expenses
When you’re preparing to buy a house that’s also a good time to figure out how much you are likely to need each month when you’re a homeowner. For example, you’ll need to pay for homeowner’s insurance, utilities and maintenance. If the roof leaks or an appliance breaks down you’ll need to pay for repairs. By anticipating your financial needs as a homeowner, you’ll be better equipped to face whatever expenses come your way.
Keep your finances stable
When you know you’re on the path to homeownership, it’s a good idea to avoid running up huge debts. During the homeownership process, a lender will scrutinize your finances when determining whether to approve your loan. Some things you want to avoid during the months leading up to your purchase if you can:
- Buying a car
- Changing jobs
- Running up a huge credit bill
- Applying for a new credit card
The homebuying process can be overwhelming but it can also run very smoothly. By making moves to get your finances ready for homeownership, you’ll put yourself on a solid foundation. Also know that you don’t have to do it alone. A HomeFree-USA Homeownership Advisor can help you come up with a plan that works perfectly for you.