Are you thinking of buying a home this year? We’ve compiled 6 easy goals for home buyers that will make it easier to find their dream home this year.
1. Limit Your Subscriptions
Monthly and yearly subscription services are certainly convenient for our busy lives, but they can add up quickly. Some examples of recurring subscriptions that we often look past are:
- Gym Memberships
- Magazine Subscriptions
- E-book services
- Video-streaming and add-on TV services
- Mobile apps with monthly fees
The internet can make it very easy and convincing to sign up for a new service or subscription, but now that you are interested in buying a home, determine which subscriptions and services you can’t live without and which ones could be terminated, at least until you find your perfect new home. The extra money that’s not being spent on frivolous subscriptions and services, will turn into extra money you can put towards your down payment, other home costs, or an emergency fund.
2. Avoid Large Purchases
When in the market for buying a new home, it’s smart to avoid taking on large amounts of debt if you can help it. Whether you were thinking about buying a new car or planning an extravagant vacation, it’s best to hold off on these plans until after the purchase of your home – even if you have already been pre-approved. Your debt-to-income (DTI) ratio is very important when buying a home – in other words, the amount of money you make compared to how much debt you have will significantly affect how much money a lender will give you. Lenders look closely at your monthly payments when you apply for a mortgage loan; and lenders are more specifically checking if your monthly payments exceed 43% of your pre-tax income. Making a large purchase will add towards your monthly payments, increasing your DTI. A higher DTI could result in delays or even a turned-down loan. If you absolutely need to make a large purchase during this time, speak to your loan officer beforehand as they can try to re-approve your loan with the new hypothetical payment.
3. Improve/Maintain Your Credit Score
Having a good credit score will put you in a strong position to qualify for a better mortgage rate. Your credit score and history will be one of the first things a lender looks at when considering you as a borrower. Lenders prefer borrowers who have a history of paying off credit cards and other revolving credit on time because it gives them assurance that you are a responsible borrower and less of a risk. A good or excellent credit score status will help your mortgage process go much more smoothly for all parties. On the other hand, a low credit score can negatively affect how much money a lender is willing to loan you, along with higher interest rates. Even just a few percentage points differences in an interest rate can cost you thousands over the life of a loan. It’s extremely important during this time to monitor your credit closely, especially fraudulent activity, to prevent any surprises from happening that could delay or endanger your loan application process. If you are unsure of your credit score, or want to know how to improve on your current score, there are countless financial websites that offer credit score monitoring and free reporting, as well as information on how to improve your current credit score.
4. Organize Your Finances
Buying a new home means you will need cash up front, otherwise known as a down payment. Plan to save enough to cover your down payment, closing costs, moving expenses, and to build or improve on your emergency savings. If there is one thing that the year 2020 taught us, it’s that it’s important to have some sort of savings or emergency funds in place. Some say the rule of thumb is to have three to six months of living expenses saved up. But if you currently don’t have any emergency savings right now, that doesn’t mean you can’t start saving now. Start small; plan and decide how much money you will put away each week or month into the fund and start building from there. This plan can also give you a realistic timeline to work with.
5. Get Taxes Done Early
Those who are expecting tax returns often have plans for that money before it even arrives. But if you’re a potential home buyer, that tax refund can help with a down payment and/or closing costs on a new home. This means, the sooner you get your taxes filed, the sooner your refund will come. Even though for most taxpayers, taxes are due by April 15th, you can electronically file your taxes much earlier than that. IRS data shows that taxpayers who filed by late February get significantly larger refunds than those who file later. So, if you’re expecting a tax return this year and also in the market for buying a new home, we suggest filing your refund as early as you can. This is definitely not the year to procrastinate.
6. Don’t Forget to Enjoy Yourself
Remember that buying a new home should be an exciting time of your life. Try to lighten the pressure as much as you can when you are feeling too overwhelmed with the buying process. The perfect home you envision is out there somewhere, you just need to find it! Enjoy yourself during the process, especially if you are home hunting with your loved ones. A fun way to get out of the rigidity of the home buying process is to visit some neighborhoods you are interested in and explore. Walk around the neighborhood, get something to eat, see what the local shops are like, and experience what it’s like to be there during the day and night.