New Home on the Horizon? Check the Health of Your Finances
If owning a home is part of the American dream for your family, you understand it is a major step.
Before you get to the closing table, making the dream a reality takes planning.
From understanding your credit history to looking at financing, our partner GreenPath Financial Wellness suggests some steps to take on your road to financial wellness as a new homebuyer:
Get Prepared to Save
The first step to getting ready to buy a house is to get your finances together. Start by getting a handle on what kind of house you want and how much you can afford. Once you have these two things figured out, then do the following:
Start tracking your spending. Be prepared to get a handle on your expenses. If you’ve got big plans for saving for a down payment, you’ll need to start tracking your spending right away. Start by keeping a spending journal. Write down every little thing you spend every week. Be sure to write down the date and amount as well as the location.
Once you’ve looked at your current finances, think about where you would like to be in the future. Buying a home is a great goal to have. At the same time, consider your longer-term financial goals, like retirement.
Evaluate your current spending to determine what changes you can make to start working towards these goals.
Understand Your Current Financial Situation
As you prepare to buy a home, it’s important to stay on top of your finances. For many, understanding personal finances can be a mystery. There are answers available to your questions when you know where to look.
A trusted financial counselor from GreenPath can help you better understand some of the most common questions about credit reports and scores, and what you can do to be ready to buy a home or any other large purchase.
Review Your Credit Report
Your credit history is important as you work on the steps to buying a house. If you’ve had challenges in the past and need to rebuild your credit, you’re not alone. The Consumer Financial Protection Bureau says nearly 1 in 4 adults in the U.S. have what is considered a poor credit score. This means a score of 580 or below.
The good news is, with some work and planning, you can improve that score. With a higher credit score, you have a better chance of being approved for things like mortgages, car loans, and credit cards.
Stay Current on Bills
Staying on top of all your bills may be easier said than done -especially if you face an unexpected financial crisis or work interruption. How you pay your bills can affect your credit score. Negative information —like missed or late payments —could affect your credit score for years and have an impact on getting into that new home.
It may sound simple but setting up a budget can help you get and stay on track.
If you are having trouble managing your bills, consider contacting your lenders. They may be able to help you with a payment plan.
What’s Affordable?
When you’re preparing to buy a house, it’s important to have a good idea of how much you can afford each month.
What is your total monthly income? How much are your non-housing-related expenses? How much do you have available?
Keep in mind that you need to have a comfortable amount of money in your budget so that you have money available to do the things you enjoy.
Understand Financing Options
Once you have put your plan in place, considered where you are financially, and found your dream home, it’s time to consider how you are going to pay for it. Remember, most people can’t afford a house without a good loan.
You can get a preapproval letter in advance to know how much you can afford to borrow, and when you need to put an offer in. Just remember that because a lender says you are preapproved up to a certain amount does not guarantee it is affordable for you with all of your other financial obligations and goals –which is why having a clear understanding of your budget is important.
All of this may sound overwhelming, but help is available. As you begin your journey, reach out to GreenPath for counseling, tips on managing credit and your budget, and free educational tools to make the home buying process much easier.
Team with a Trusted National Nonprofit
GreenPath can be your partner as you consider buying a home. Certified housing counselors can help you understand:
The Realtor’s Role: Buyer and Seller
Down Payment: How much do you need?
Types of Mortgages: Understanding loan options
Home Appraisals
Pre-qualifying for financing
Home Inspection: What Should It Cover?
Escrow Accounts: The What and Why
Insurance and other costs of ownership
The right time to buy a home is when you’ll be able to afford it and feel secure enough in your financial circumstances to be able to meet this new obligation.
GreenPath counseling and education can help you navigate the process and make better, informed decisions.
