If you’re preparing to sign on the dotted line for your new home, there are some important financial steps you should make sure you accomplish first.
From saving up for at least a 20% down payment to getting all of your financial documents in order, following these moves can ensure that you have an easy home-buying experience. They can also help you avoid going into debt and having to look into personal loans for debt consolidation.
Keep reading to learn about 5 important money moves to make before you buy a home.
1. Save For A Larger Down Payment
While you can get a mortgage for less than 20% down, it generally isn’t a good idea. Doing so will make you appear as a high-risk borrower and you’ll be required to make private mortgage insurance (PMI) payments. PMI insurance helps protect the lender in case you can’t pay.
2. Anticipate Future Financial Needs
When looking at mortgages, anticipate the possibility that your budget could fluctuate over the next few years. If you suddenly need to help pay for a child’s schooling or care for an aging parent, you could run the risk of defaulting on your payments. Choose a mortgage amount that gives you a little leeway just in case your circumstances change. You’ll also want to make sure you’re thinking of the full cost of homeownership. Insurance, utilities, and taxes all add to the total cost beyond just the mortgage amount.
3. Boost Your Credit Score
The higher your credit score, the more likely you’ll secure a low mortgage rate. Before you start looking at homes, you’ll want to check your credit report to make sure there aren’t any mistakes, practice responsible credit card usage—including paying bills on time and in full—and maintain a low credit utilization ratio.
Steps To Maintain A Fair Credit ScoreThe credit score is a numerical expression evaluated and decided on the basis of credit file levels. It is defined to represent the creditworthiness of the person who is seeking financial help. In most cases, the financial advisors or experts seek information from the
4. Select The Right Mortgage For You
You can take out a mortgage anywhere from 5 to 30 years. There are two types of mortgages: fixed-rates and adjustable rates (also known as ARMs). Most buyers should consider fixed-rate mortgages, though if you only plan to be in your house for a short period of time, an adjustable-rate mortgage might be a good choice for you. These mortgages start low but increase over time.
5. Prepare Your Finances
You found the house of your dreams and a mortgage that you know you’ll be comfortable paying. Now it’s time to get your finances and documents in order for your application. These include W-2s, paystubs, and bank statements. Having everything prepared ahead of time will help you have a smoother signing process.
These simple money moves can make buying a home a piece of cake. You’ll be holding the keys to your new home and popping a bottle of champagne to celebrate in no time. Save for a large down payment, try to anticipate your future financial needs, raise your credit score, select a reasonable mortgage amount, and prepare your finances ahead of time. Best of luck!