Get Ready To Buy Your Home

Have you dreamed of owning a home of your own, but just haven’t been able to put enough into savings for that dreaded down payment? Do you worry that you’ll find the dream home of choice, only to be told your credit score isn’t good enough for a home loan or that you have far too much debt? Do you fear that once you get into your home you will lose it because it’s “more” than you thought you could afford? Then this post is for you!

Many people think the first step towards buying their home is to determine exactly what type of home they want, what area they want to live in, and then, of course, checking out the schools, crime rates, etc. Those are all great things to consider when buying a home, but that’s not the first place you should start.

When preparing to buy a home, you must consider your financial status. If your finances aren’t in order, it won’t matter what the house or the neighborhood looks like because the lender isn’t going to give you the money to buy it. So where do you start—financially speaking that is?

Step One: Gather Your Bills

The best place to start is with a spreadsheet. Write down how much money you have coming in every month—child support, disability income, salary, investments, etc. Next, write down your expenses. How much money do you pay out everything month?

• What credit card companies do you owe money to and how much?
• What is the interest rate, the balance, and the available credit on those cards?
• What do you pay out every month for medical expenses: insurance premiums, co-pays, medications, doctor visits?
• How much are your monthly utilities: gas, electricity, water, sewer, trash and do you struggle to pay them monthly?
• Do you have a car, boat, or luxury vehicle payment and how much is it per month?
• What is the interest rate and balance owed on those vehicles?
• How much do you pay out monthly towards groceries, school lunches, and work lunches?
• Do you pay for cleaning of work clothes or union dues?
• Are there any other re-occurring expenses that come up every month, not listed above? What are they? Can they be terminated now or must you fulfill a contract?
• How much money do you spend monthly on extras like manicures, hair cuts, clothing, massages, or fun?
• How much money do you put away for emergencies or retirement each month and how much do you currently have in those accounts?
• Do you owe anyone money that isn’t reported on your credit report? A personal loan from a family member, perhaps? How much do you owe, when is the money due, and if you make payments, how much per month?
• Do you have any outstanding student loans? How much longer until you pay them off? What do you owe, what is the interest rate, and what must you pay each month?

Once you have an idea of what you make and what you pay out each month, you’ll be able to determine how much money you have left at the end of the month to help you afford that house. Keep in mind that once you own a home, you’ll also have to take care of any repairs to the home, so having extra money each month to put into savings is a huge benefit.

Step Two: Get Your Credit Report

Your credit report plays a huge part in determining whether or not you will get a home loan, therefore, it’s vital that you get a copy of your credit report from all three reporting agencies (http://www.equifax.com/, http://www.experian.com/, http://www.transunion.com/) before you apply for a home loan.

Once you receive a copy of your credit report, check it over for accuracy.

• Is there something on there that isn’t yours?
• Does it show you still owing on an account that was paid off last month, last year, or five years ago?
• Does it accurately show how much you owe on each account and how much credit is left to be used?
• Is your work history correct?
• Is your name spelled correctly and does it list your married name and not your maiden name?
• Is your social security number correct and do they only have one listed?
• Is there anything on your credit report that could negatively affect your credit score? (i.e. bankruptcy and late payments)

Once you’ve determined all the inaccuracies on your credit report, contact each agency to have those inaccuracies fixed. You’ll have to write a formal complaint, listing each inaccuracy in detail and providing proof that accounts were, indeed, paid in full. Once the credit reporting agency receives your complaint, they’ll investigate. If they cannot get something cleared up on their end, you may need to seek the help of a competent attorney. But more often than not, you can clear up mistakes with a few back and forth letters to the agency and the company in question.

You can get a free copy of your credit report, once per year by visiting Annual Credit Report (https://www.annualcreditreport.com/).

Step Three: Clear Up Your Credit

Besides getting your credit report cleared up, you need to clear up your outstanding debt. While you don’t necessarily have to pay off all your debt in order to get a home loan, you do need to make sure you have a good handle on your debt.

Say No To Pay Day Loans

If you have a habit of using Payday Loan services, stop. Having those accounts on your credit report can cause red flags. Payday Loan services are usually for those who’ve overextended themselves and need help getting out of financial jams. That could imply, to potential lenders, that you are living way beyond your means.

Stop Charging

Lending institutions use your credit score to determine how much money they are willing to lend you, which ultimately means how much house you can buy. And they rely on FICO scores to do it. In other words, the higher your FICO score, the less of a financial risk you appear to be. So while you can keep your credit cards open, the more available credit on those accounts the better. To learn more about how FICO scores work, get the free e-book at MyFico.com. (http://www.myfico.com/Downloads/Brochures.aspx#uycs)

Don’t Consolidate Bills

While it may be tempting to consolidate your bills by opening up a new account and transferring your old credit cards or loans to the new account, think twice. Sometimes it could do more harm than good. Speak to your lender before making such a decision. And in the meantime, don’t open up any new charge accounts and don’t purchase any new big ticketed items until after you’ve closed on your new home.

Step Four: Start Saving

A savings account looks really good to lenders so start putting some money away. Save for those rainy days so you don’t have to rely on your credit cards. Save for moving expenses. Save for emergencies. Save for those big ticketed items. Save for home repairs and renovations; just start saving.

By putting these four steps into action, you’re well on your way to purchasing your very first home, or upgrading to your dream home!