3 Money-Saving (Not So) Secrets to buying your first home
As a first-time home buyer, it’s important to understand how to budget to buy your first house. Luckily, the process isn’t as complicated as it’s made out to be. All you must do is focus on your current financial situation, while also understanding what the mortgage lenders look for before they give out a loan. Here are 4 amazing tips that will ensure that you and your family are financially prepared to buy your first house.
(Using some good ole’ common sense) Secret #1: Reduce the debt you’ve built
If you’re surprised that reducing your debt is first on the list, before savings, then you’re a lot alike to other home buyers. Honestly, your debt-to-income ratio, as well as the types of debt you have are significantly important when it comes to buying your first home. Before you start saving, pay down your debt. With liquid cash, you can earn 1% interest if you’re lucky. The problem is, all the debt you carry from one month to the next has interest rates in the double digits most of the time. Work on reducing your consumer debt, your education loans, and any other debt(s) you have. This not only means you’ll be able to take on a higher loan, but it also brings us much faster to our next step…
(What you’ve probably been told a dozen times before) Secret #2: Strengthen your credit score
That’s right, it’s important to strengthen your credit score before attempting to buy your first home. You’re going to do this in three ways. One, is by reducing your debt as much as possible. Second, is by paying your debts on time, every single month. Third, you’ll want to limit the amount of credit inquiries and credit applications that you apply for the year leading up to you getting pre-approved for a mortgage. These three techniques will signal that you’re in a strong financial position to afford a mortgage, reduce the amount of interest payments you make once you’ve purchased your home, and guarantee you a great interest rate. Remember, a 30-point difference in your FICO score can save you thousands of dollars over the life of a mortgage loan, so really commit to strengthening your credit score!
(It’s more about discipline here then it is about wishful thinking) Secret #3: Focus on strong savings habits
Strong savings habits come from two areas. First, you should seek to increase your income. Second, you should put that extra money into savings on a consistent basis. Even a modest $300 per month equals $3600 at the end of the year. Lenders want to see that you have a pattern of saving money and you need 3.5% to 10% of the cost of your home at a minimum, depending on the type of loan you’re applying for.
When increasing your income, focus on the big wins and the small ones, by budgeting, automating your savings, and saving wherever you can. These habits will start small, but scale into a large amount of money each month that you can eventually use toward your first mortgage.
So, there you have it! 3 steps that will greatly help you budget for your first house. If you’re wondering where to begin or curious as to how much home you can afford with your current credit and savings, contact me! I’m a real estate agent in Durant, OK, who has helped families at all steps of the home buying and selling process. We would be glad to help you too, so give us a call or send us an email to get started today!