Preparing ahead financially can ease the cumbersome aspects of purchasing a home later on. Doing your research beforehand will allow you to go into the housing market with a clear head, side-stepping many common problems home #buyers face. There are five key things to remember in order to buy your home responsibly:
Create a Budget
Figure out what your monthly expenses are, and then your annual expenses. Now compare that to your monthly income. The money left over can be used to determine the house price. While you’re doing this, use a mortgage calculator to figure out what the acceptable monthly amount is for the home. If you have no money left at the end of the month, ask yourself if this is the time for you to buy a home.
Pay Debt Off
If you have debt – credit card, student loan, auto loan, etc. – make sure you start paying it off or reduce it. Lenders won’t give people mortgages who can’t effectively manage their debt. You don’t need to be debt-free, but you do need to owe less than what you actually earn. Lenders will use a debt ratio to determine your monthly debt payments to the gross monthly income.
Most lenders will want you to put some money down before they give you a loan – usually 10 to 20 percent. Saving money through an RRSP can stimulate your finances. You can reduce your monthly expenses, putting the extra money into a savings account. If you can handle it, work a second job for the extra money.
Know and Increase Your Credit Score
Lenders are going to look at your credit to determine just how creditworthy you are. They want to see if you’re financially responsible. A strong credit score means you’re consistent in paying the bills and you can manage your money effectively. The better your score is, the better the interest rate on the loan.
Make sure you review your credit report to ensure it’s accurate. If you find any inaccuracies, get in touch with the credit bureaus to address them.
Talk to a Mortgage Professional
After you’ve done all this, it’s time to talk to a mortgage professional about the processes in buying a home. Get a pre-approval and find out how much they’ll loan you for a home. From that, you can find a realtor who can work within that budget and fulfill your desires.
Before you know it, you’ll have the home you want with a mortgage rate you can feel comfortable with and you won’t feel overburdened by debt when you develop a financial plan.