Financially Preparing for a Home Purchase

Buying a home is a major undertaking. Getting your finances in order beforehand is key to a smooth purchase. This can be difficult for individuals with debt. Fortunately, there are ways to improve your financial situation within six months to a year.

Research and Plan

To prepare your finances for a home purchase, you first need to understand the expenses associated with buying a home. First, of course, is the purchase price. Be sure to first research the area and neighborhoods you find appealing to get an idea of how much homes are going for. In the Virginia Beach housing market, for example, the median sale price is currently nearly $332,000. Your Realtor will be able to take care of most all of this for you with a buyer consultation and setting up your housing search.

In addition to the cost of the property itself, you will need to be able to afford homeowners insurance, mortgage insurance, possibly home owners association dues and routine maintenance costs. Factoring in these costs can help you estimate your ideal price range.

There are also one-time costs associated with the purchase including closing costs, inspections, and appraisal. CNBC reports that the average down payment is 7-17%, depending on the type of mortgage. Research loan options to familiarize yourself with the varying requirements.

For professional advice as you pursue your home purchase, give me a call. I can walk you through the whole process, all the way through closing – and beyond!

Pay Down Debt and Save Money

Outstanding debt can delay home buying, so work to pay off debt. Doing so improves your debt-to-income ratio, frees up future income for mortgage payments and may improve your credit score. Look at the interest rates on your different debts. Many individuals choose to pay off the debt with the highest interest rate first. A balance transfer, where you essentially pay off the balance of one credit card with another, is a good idea if the interest rate and terms of the new card are more favorable. If you have question on the best way to proceed to help get you the loan you want talk with Traci Waller, she has helped countless buyers prepare to get a loan and then get through the entire loan process.

Create a personal budget and put as much toward debt reduction and savings as you can. Look for ways to save on groceries, entertainment and other expenses. Consider only subscribing to one streaming service at a time. Check your local library for free entertainment options. Purchase generic groceries and household supplies when possible. Calculate unit costs to determine if buying in bulk will lower the overall price.

If you own your own business, look into LLC benefits to determine if restructuring your business could save you money on taxes. Laws for LLC formation vary by state, so check your local regulations for forming an LLC in Virginia. If you are an employee, ask for extra hours or consider getting a side hustle to earn extra money, and put all that money toward either debt payments or savings for a down payment and other home-buying costs.

Improve Your Credit Score

Your credit score affects the types and terms of home loans you are eligible for, so I recommend working on increasing your score. Set bills on autopay to avoid late payments. Many organizations allow you to select the amount you want to pay each month. This allows you to autopay more than the minimum amount.

Get a copy of your credit report and correct any errors. Avoid closing old accounts to maintain the average age of your credit. Diversify the types of credit sources you use. Consider opening a new account and keeping the outstanding balance low by paying in full each month to decrease your overall credit utilization. Don’t open too many new accounts as doing so can negatively impact your score.

A home is a great investment. The right purchase provides both physical stability and financial rewards. However, too much debt, too little savings or a low credit score can all derail your plans. Take steps like saving money, improving your credit score, and establishing an LLC if you’re a business owner before beginning the home-buying process.