So you’re looking to buy a new house. Congratulations! Whether you’ve been saving for years, or you’re just getting started in the process, here are a few quick tips to help you stay on top of your finances, so you can secure your dream home.
Check Your Credit Score
It’s probably no surprise that this is one of the most important factors that banks look at when qualifying you for a loan. So remember to keep an eye on it. Websites like AnnualCreditReport.com can give you a free credit score, which you can then review closely for errors that may be unfairly bringing down your credit. Not all lenders agree on the magic number, so be sure to research your lending institution to figure out where you need to be. If your score needs improvement, I don’t have to tell you that staying up-to-date on payments will work wonders. Some other quick tips to bring up your score – get a good mix of credit (installment accounts as well as credit cards), keep your application inquiries at a minimum and keep your balance below 30 percent on all cards, at all times.
Evaluate How Much You Can Afford
It’s easy to get sucked into a beautiful new home, but hidden costs can add thousands to your price tag. You’re more likely to go over budget if you don’t evaluate how much you can really afford BEFORE starting your search. So take a step back.
- Resist the urge to fall in love with any listings until you figure in expenses like closing costs, home insurance, private mortgage insurance (if you plan to put down less than 20%), property tax, utilities and maintenance.
- A top-of-the-budget, turnkey home might seem attractive at first but don’t rule out buying for less and using the extra cash to renovate later.
- I also highly recommend getting preapproved, which means that a lender reviews your financial background and current credit rating, and provides you a preapproval letter showing how much you can afford. This is different than a prequalification, which is only an estimate of how much you can afford. Preapproval will not only help you define your budget as you’ll know exactly what you can get from a lender, but sellers often take preapprovals more seriously and it can help get your offer to the top of the list.
Find Ways to Save
Buying and maintaining a home can be taxing on your finances, so you’ll need to make some room in your budget, which means cutting costs where you can. Start small. Put a cap on your daily coffee runs, scale back on those expensive fitness classes or opt for a staycation and put the funds you would have spent into savings.
Another idea is to set aside your tax returns or an annual bonus for a down payment. Look at it this way – markets can be competitive, bidding wars can drive up prices like crazy, but having money available for your down payment can put you in the driver’s seat.
Put Other Big Purchases on Hold
It can be tempting to start buying furniture for your new home or buying a car for the new commute. Don’t do it. A car loan or any other depletion of cash available for a down payment could adversely affect your ability to get a loan for your mortgage and you may end up losing out on your dream home because of it. A purchase this size deserves to be your number one priority, so save the rest for after the closing.
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