4 Steps to Prepare for Purchasing a Home

4 Steps to Prepare for Purchasing a Home

By Tina Martin

If buying a home is on your horizon within the next year but you're unsure of how to prepare financially for such a big move, don't stress.  Prime Homes Property Group is happy to present the following steps to help you clean up your credit profile, save for a down payment, and land the home of your dreams.

Know Your Numbers

Home buying is all about the numbers, starting with your credit score. Using a free online service such as Credit Karma, you can access your full credit report that lenders use to assess whether you are a good candidate for a home loan. Even if your credit isn't great, there are still financing options available to those with less-than-stellar scores, such as FHA loans.

In addition to your credit score, lenders look at your DTI. This is the amount of your income that gets spent on consistent expenses such as loans and credit card payments. Easily calculate your DTI using an online calculator. Lenders look for a DTI of 43 percent or less, so if yours is at or higher than that, prioritize paying off debts which can pare down that number. That way, you’ll be in a much better position to secure a good mortgage with a reputable lender.

Make a Budget

Now is the time for budgeting. There are countless budget templates available online and many excellent budgeting apps, so research your options and choose one that is right for your situation. A house is likely the biggest purchase you'll ever make, so take that into consideration when fashioning your budget. Choose things to do without or cut back on temporarily in order to save money and get the best possible deal on your home.

Pay Down Debt

Part of your budget should be allotted to paying down debt each month. While there are many ways of doing this, many choose what is called the avalanche model of debt payoff, as it allows you to pay off debt while saving on interest.

To use avalanche debt paying, make a list of your debts and their interest rates. Then you pay them off starting with the debt with the highest interest and working your way through them systematically from the steepest rate to the lowest. For instance, if you had a personal loan at 12 percent, a credit card at 19 percent, and a car loan at 5 percent, you would pay the credit card first. Once it is paid in full, you roll the payment you would've made toward it into your payment on the debt with the next highest rate.

Be a Savvy Saver

Research prices of homes to see how much you need to save up for your down payment and closing costs. Once armed with that information, start saving every chance you get.

Believe it or not, you can actually earn money in your spare time on your phone. Money-generating apps reward you for simple tasks like purchasing shampoo you were going to buy anyway or answering simple surveys. Look for small tasks you can complete while there is downtime in your day and let the cash you make add up.

Here’s another important tip: don't let your savings sit in your regular bank account if it isn't giving you serious benefits. Instead, put it all into a high-yield savings account. There are many banks that offer bonuses to first-time customers. Shop around for the best rate and bonuses, and then let your money work for you.

At Prime Homes Property Group, we strive to give excellent customer service and to guide you throughout the purchasing/selling process every step of the way. Contact us today!