When you are buying a home, there is more to the process than deciding what type of home and its features you want to buy. You also need to consider the financial side of the home buying process, which entails how you are going to be able to pay for your new purchase. As you begin the home buying process, here are some tips to help you get your finances prepared and ready to get financing.
Look at Your Credit
One of the first things you should do when beginning the process of buying a home is to look at your credit report, including all your liabilities and any open lines of credit you currently have. Request a free copy of your credit report online with one of the three main credit bureaus: TransUnion, Equifax, and Experian.
Although you have not owe any balances on the accounts, having too many open credit cards can hurt your credit score and lower your financial health. Any open credit cards are calculated as potential debt and a loan underwriter will likely consider that you could go out tomorrow and charge them all up as real debt. So if you have several credit cards that are not being used, it is helpful to close them. When you go through the financing qualification process your mortgage broker is going to look closely at all your liabilities and debts and may advise you on consolidating or paying off specific loans, and this can prepare you.
Determine Your Budget
Next, you should figure out how much you can afford for a mortgage payment to make sure you don't overextend your finances. Add up all your financial obligations each month, excluding your current housing but including utilities, child care, eating out, groceries, clothing, personal care, charitable donations, and other expenses you pay for each month. After you add up all your monthly obligations, subtract this from your monthly take-home pay. The difference between your obligations and your take-home pay will tell you how much you will have left over to pay for a mortgage payment.
When you calculate this, make sure you don't budget all the extra income each month toward a mortgage payment. You want to make sure you have extra money for unexpected expenses that can come up. Remember to consider other non-monthly expenses you will need to take care of, including vacations, savings, and medical and dental expenses.
Once you have reviewed your credit and evaluated your finances, you can talk to a mortgage broker to begin the process of applying for financing. You can also hire a real estate professional and begin to search for your dream home.