Buying a home is almost like a rite of passage among many adults. After all, shelter is a basic human requirement. But buying a house isn’t just something that’s done on the fly. It takes a lot of preparation because it’s a significant financial commitment.
Your finances will matter a lot when it comes to purchasing the best home for you. Before you even go to a lender to apply for one, it’s best to sort out your financial standing to increase the chances of being approved.
Here’s how you can become financially ready to buy a house:
Do Your Best to Increase Your Credit Score
There isn’t exact advice when it comes to increasing your credit score as each individual has a different experience and background. But there are some generally accepted practices that can improve your credit score, ones that are best applied a year or so before you plan to take out a mortgage. Here are a few that you can try.
Don’t Be Late with Your Bills.
Payment history is one of the major factors that affect credit score and if you have any late payments, it can stay on your record for many years. If you do miss a payment, do your best to make up for it as your succeeding positive credit can help improve your record sooner.
Use Your Credit Card Less.
Your spending habits will have to adjust- many lenders look at the credit utilization ratio of applicants. This basically measures how much is available versus how much was spent on your credit card. This is done to measure an applicant’s creditworthiness and to see whether their spending habits will allow for a mortgage.
Avoid Applying For New Credit.
When trying to increase your credit score, the last thing you want is to take a hard credit inquiry hit, resulting in a negative, albeit temporary, effect on your credit score. This is exactly what happens when you open a new credit card. It’s best to clear off any existing ones, should you have a need to use a credit card, and completely hold in making a new one.
Pay Off Your Debt
Having to pay the debt while paying a mortgage at the same time can be quite difficult, if not outright impossible. Before locking yourself in a financial commitment such as purchasing a house, make sure that you worked towards repaying your debt. This will not only increase your chances of getting better mortgage rates but also in making sure that your applications will get approved.
Another option is to work on your DTI. Debt to income ratio (or DTI) is a way for companies to judge the ability of a borrower to meet a mortgage. It’s calculated by summing up all current debt payments combined with the suggested mortgage rates (including all the necessary and associated fees). This is then divided by the borrower’s gross monthly income. So consider working on paying off your debt, it will make the house-buying process a lot easier.
Find an Agent You Can Trust
Finding a real estate agent that you can rely on will help a lot when it comes to buying your first house. After preparing your finances, you might still feel unconfident about the whole situation, especially if you’re coming off of financial recovery. Having a real estate agent help you go through the process, especially with sorting out all the necessary financial paperwork makes the whole process considerably easier. They can also provide help when it comes to finding a mortgage or lending company, something that can make a big difference in your experience.
Start Saving Now
Of course, it’s in your best interest to start saving money in preparation for a house. Consider utilizing expense tracker apps to see whether there are expenses you can cut on. Check whether you’re overspending on some aspects, like online subscriptions you barely use or cheap but frequently-bought snacks that accumulate into a substantial amount.
Taking on a second job isn’t uncommon when saving up to buy a house, but only do so if you think you have the energy to juggle two jobs at once. You will have to structure your life and way of living to allow for a tighter budget, but once you have a property of your own it will all be worth it.
Don’t let yourself make emotional decisions when buying a house- especially when you’re still in the phase of preparing to buy one. Overcoming the challenge of sorting out your finances can be difficult, but with enough effort and strategy, you can achieve it. Soon enough, you’ll find yourself ready to purchase a new home.