For many people, part of their dream for their life is to own their own home. However, this isn’t a simple task for most people to accomplish. To really be prepared for homeownership, you’ve got to make sure your financial house is in order well before you begin the home buying process.
So to help ensure that you’ll be able to purchase a home once you feel that you’re ready for this next step in your life, here are three tips for preparing your finances for a home purchase.
Get Your Credit In Order
One of the first things you should be concerned with as you begin preparing to buy a home is your credit. While having bad credit is never a great thing, a low credit score can make it very difficult to qualify for a reasonable home loan that comes with a decent interest rate.
If you’re not sure what you can or should be doing to start improving your credit score, David Weliver, a contributor to Money Under 30, recommends that you start by making on-time payments on any debt or lines of credit you currently have. Additionally, try not to open any new lines of credit as you prepare to apply for a home loan, as this could cause your current credit rate to take a hit at the worst possible time for you.
Build Your Down Payment
In addition to having a good credit score, another thing you should work on as you prepare your finances for a home purchase is your down payment.
According to Lauren Bowling, a contributor to HouseLogic.com, it’s really ideal for you to save at least 20 percent of the total cost of your future home for your down payment. However, because this is likely a very large number that would take the average person years and years to build, many people wind up putting far less down as a down payment.
Regardless of how much money you’re wanting to save for your down payment, it’s always wise to have some extra money in your savings account so you can cover unexpected or unplanned costs that are often associated with buying a new home.
Reduce Your Debt
As you seek to improve your credit score, something that should come along with this is a reduction of your debt.
While you can still apply for a home loan if you have debt, Miriam Caldwell, a contributor to The Balance, shares that having less debt attached to you will allow you to qualify for a larger home loan, an improved interest rate on your home loan, and will help you to not feel as strapped for cash as you consider all the other expenses that come along with being a new homeowner.
If you’re wanting to buy a new home in the near future, consider using the tips mentioned above to help you prepare for this financially.