Aug 18, 2015 / Mortgages

Dollars and Sense of Home Buying

Are you ready for what will likely be the biggest purchase you’ll ever make?

You probably are ready to settle into your first home and enjoy the freedom of owning those walls you can put holes in wherever you want. You’re probably excited to redecorate and/or remodel and make it your own: your haven, your sanctuary, YOUR HOME.

But before you buy your piece of the American dream, you should build your credit score, your budget and your relationship with your lender. Being prepared will help you get the house you want and the financing you need.

Here’s how to get ready to own a home:

1. Edit your credit

Your lender will use your credit history and FICO score to determine your financing options. The better your FICO score is, the lower your monthly payments will be.

To make sure you are ready to go when you find that perfect house, get a copy of your credit report from all three major credit bureaus and check for delinquencies and discrepancies. If you find any discrepancies on your report, send a letter to the credit bureaus requesting a correction. If you have any existing delinquencies, partner with creditors to pay them off.

Then start borrowing as responsibly as you can. This means paying your balances in full each month and resisting the urge to use more than the recommended 30% of your available credit, no matter how cute that trendy new skirt is.

It takes time to improve your overall score, so don’t leave this to the last minute. Staying on top of your credit is one of the best ways to stay on top of your lender’s preferred borrower list – and that’s much better than a new skirt.

2. Set a practical budget

Be realistic about how much house you can comfortably afford.

Typically, your monthly mortgage shouldn’t be more than one-third of your income. If you run the numbers and see that the bulk of your income will be funneled into your mortgage payment, it’s time to rethink your budget.

If you can’t increase your income, then you need to decrease your anticipated mortgage payment. If you have your heart set on a brand new four-bedroom house, consider whether you should be looking at two-bedrooms or older homes instead. You may not end up owning the swankiest home on your street but, hey, at least you’ll own a home, right?

Plus, being practical about what you can afford will help you avoid falling behind on mortgage payments or eating nothing but peanut butter sandwiches for the next few years.

3. Don’t overlook expenses

Your down payment and monthly mortgage aren’t the only expenses you’ll incur when you buy a home. Closing costs, moving fees and required maintenance on your home can set you back thousands of dollars.

There’s nothing worse than dining by candlelight because you can’t foot the bill for the electrical panel that just went out, so add some cushion to your budget to prevent your wallet from being undone by the unexpected.

The rule of thumb for maintenance is 1-3% of your home’s purchase price per year. So, for example, if your home cost $300k, each year set aside at least $3,000 in a separate savings account and earmark it for the surprise broken water heater or garage door opener.

Start Today

While you’re reviewing your credit score, doing your budget math and saving for your down payment, see how much financing your dollars and sense will help you qualify for: Apply Now.