4 Steps in getting your financials in order before you buy
Buying a house takes more than a down payment: You need financial readiness. Stick to the plan, and you’ll start making real progress toward your goal.
1. Know how much home you can afford
Ideally, your housing payment is no more than 30% of your take-home pay. Look for an online “How much house can you afford” calculator, enter your ideal payment and work from there. Then play around with it. What happens if you add $50, $100 or $200 to the monthly payment?
2. Create a homeowner budget
To help you plan and adapt, work out a monthly budget that factors in your expected mortgage payment. Don’t forget to include property taxes, homeowner’s insurance, utilities and a cash fund for various household supplies and expenses.
3. Know the score
Use the free credit score feature on your online bank account to see where you need improvement, then keep track of monthly progress. Focus on good credit hygiene like on-time payments, paying down debt and refraining from opening (or closing) credit accounts. A higher credit score indicates to lenders you’re a good credit risk, which increases your eligibility for a competitive interest rate. For a mortgage, even a quarter of a percentage can translate into tens of thousands of dollars.
4. Save for a down payment
Start squirreling away extra cash each month to build your down payment. If you find yourself short of funds, examining your spending habits, shopping for deals and looking for opportunities to boost your income will accelerate your progress.