New Year’s Resolution: Get Your Finances in Order
December 31st, 2014
December 31st, 2014
Each year, many people make New Year’s resolutions, like losing weight, exercising more or getting a new job. If your goal for the New Year is to buy a new home, you need to ensure that your finances are stable in order to show lenders that you’re a serious buyer. If you want to make your dream of homeownership a reality, you need to get your finances in order first by following these tips.
1. Assess your current income and assets.
Write down how much you currently own, like a house, car, bank accounts and investments. Figure out how much money you’re bringing in each month.
2. Analyze your expenses.
Document all of your monthly and annual expenses, like rent or mortgage payments, utilities, groceries, insurance, credit card debt and loans. Determine the difference between what you’re making versus what you’re spending. What you’ll likely find is that you’re spending too much money in certain areas and buying things you don’t need. Get rid of expenses you don’t need or negotiate a lower payment.
3. Create a realistic budget.
Develop a budget based on “wants” versus “needs,” especially looking at discretionary spending, like eating out, entertainment, clothes and personal care.
4. Check your credit reports.
Get a free copy of your credit report from the 3 major credit reporting agencies: Equifax, Experian and TransUnion. Review these credit reports for errors. Contact the reporting agency to fix any mistakes.
Also, get your credit score from each agency (this may require additional fee). Credit scores can range from 300 to 850. The higher your credit score, the lower your down payment and monthly payments will be. Scores above 700 will get you better rates, while scores in the 600s and below can mean you’ll pay more fees or need to make a higher down payment.
5. Pay down your debt.
If your total debt is more than about 36% of your income, you need to lower your debt. Pay down or off your highest-interest debt first. Make all payments on time. Avoid taking on any new debt. By reducing your debt, you can improve your credit score.
6. Save for your down payment and closing fees.
If you need to save money for a down payment and closing costs, develop a savings plan. For example, set up an automatic deposit from your paycheck to a savings account each pay period. Depending on your credit and the type of home financing you’re getting, you may need to save a down payment of 3.5% to 20% of the home’s price. Generally, closing costs are about 5% of the mortgage amount. These fees include the appraisal fee, loan fees, attorney’s fees, inspection fees and the cost of the title search.
While getting your finances in order can take some time, it will help ensure your home-buying goes smoothly.
Also, before you start shopping for a new home, you’ll want to get preapproved for a mortgage. Contact the mortgage specialists at Grandview Lending in Indianapolis to begin the preapproval process. Or, complete our online loan application. Our mortgage specialists will work with you to help you find the right loan solution for your needs.
Photo credit: iStockphoto/Photo Dave
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