Buying a home is a big financial decision. While it can be an excellent investment in your future, it requires a pretty intimidating financial commitment that not everyone is ready to make. If you are currently struggling with your finances, becoming a homeowner may add to your stress in a big way. Before taking this step, take the time to get your money under control by following these tips.
Align your lifestyle with your income
Part of getting your finances in line involves having some hard conversations with yourself about your spending habits. How much are you spending compared to the amount of money that you take in each month? And what do you spend that money on? How much food delivery do you really need? How you spend says a lot about what you prioritize in your life. Do your priorities align with your goals for you and your family? If not, it’s time to make a change. However, you don’t have to change abruptly or all at once. Lowering your grocery bill or staying budget-friendly this summer are great first steps to change your spending habits. Small changes can make a big difference and be much more sustainable in the long run.
Make a Budget
One of the easiest, albeit least exciting, ways to start to make your money work for you is to build a budget. There is a reason you can’t get financial advice without hearing this age-old tip. It really works! When you work on a budget, you have a chance to lay out how you use your money, giving you a useful overview of your finances. Remember those tough conversations you just had with yourself? This budget is where you can implement changes to better reflect your financial priorities. Using budgeting software can make it easy to get started.
Do your research
One often overlooked aspect of getting yourself financially organized is doing thorough research to understand all of your options. Knowing what kind of borrower you are and what kind of loans you want will help you figure out what kind of lender you need. Look into state-specific programs to see if there is added assistance available for buyers. If you’re a veteran, figure out exactly what your VA entitlement amount is, so that you can take full advantage of your benefits when you’re ready to buy. Look at the qualifications for both qualified and non-qualified loans so that you know exactly what you’re eligible for. The more information you have for the lender, the easier it will be to ensure you get the loan that is best for you.
Work on improving your DTI and Credit score
Two numbers that are of particular interest to lenders are your credit score and your debt-to-income ratio (DTI). Your credit score is a measure of your debt-paying habits. Creditors look at several aspects of your credit history (such as what percentage of your credit you use) and then give you a score. If you’re struggling to stay on top of your credit cards, give yourself a little breathing room with a low-interest credit card loan, and work on paying that down. The other important number is your DTI, or the percentage of your monthly income that goes towards debt payments. If this percentage is too high, working with a financial counselor can help you get out of debt. By focusing on these two numbers, you can help yourself put together the best loan application possible before you apply.
Follow these tips and you’ll have your finances in shape in no time. You’ll be ready to look for your new home before you know it.