Even with the recent real estate market troubles, many people are still interested in buying homes. Buying a home, though, isn’t something you can just do. Because it’s a major purchase, and because most people need to have a bank lend them the money to complete the transaction, you need to make sure that your finances are in order before you proceed.
In fact, many lenders will want to make sure that your finances are in order before they will provide you with the cash you need to buy a home. Before you apply for a mortgage — before you even begin looking for a home — it’s vital that you get your finances in order.
1. Check Your Credit
One of the first things to do if you want to get your finances in order is to see where you stand. Checking your credit report is a good first step. Go to AnnualCreditReport.com to claim a free report from each of the major bureaus every year. Take a look at your credit report to get an idea of where you stand. You can get an idea of problem areas in your finances with a little help from your credit report.
You can have errors fixed on your credit report, as well as figure out whether or not there are other issues holding you back.
2. Pay Down Debt
Of course, the most important thing you can do to get your finances in order is to pay down debt. Look at how much you owe in debt, and make a plan to pay it down. While you can still get a home loan without having all of your consumer debt paid off, it’s often a good idea to do what you can to reduce your overall debt as much as possible.
In some cases, you might need to make sure your debt payments are limited to 36 percent of your monthly income. However, it is always better to get rid of debt if you can. Create a good plan to pay down debt. As long as you do what you can to get your debt under control and you make a good start, you are preparing for a mortgage later.
3. Live on a Budget
You also need a spending plan in order to keep your finances on track. Put together a budget that allows you to account for your income and expenses, and that keeps you from overspending. As part of your effort to live on a budget, track your spending so you know where your money is going. If you’ve spent more than you should in the past, setting up a budget is a good way to change your habits and rein yourself in.
Living on a budget can help you work on a way to set aside money for a down payment on a home, and help you learn to manage your money so that you can afford the higher costs that often come with home ownership. If you want to own a home, and reduce the chances of default on your mortgage, it’s vital that you learn how to spend less than you earn, and live according to a spending plan.
There are ways you can make it easier to manage your finances, from automating your bills so you can stay on top of them, as well as looking for ways to earn more money so that you can handle your finances. The important thing is to look at where you stand, identify the problem areas, and then make a plan to improve matters so you can handle a home loan.