f you want to buy a shore home this year, you may be in the midst of planning—or perhaps you're already well on your way. Purchasing a home is a process made up of many moving parts, including your finances, your overall goals, your planning ability and your current financial situation. That said, it’s the season for New Year’s resolutions, right? Start making some financial ones along with your other goals.
To get you started, here are five financial resolutions that can help you reach your goal of buying a shore home in 2018:
Make a Budget
Just over 40 percent of Americans have a budget. Budgets are invaluable to prospective homeowners, though. Why? Well, you can see how much you spend per month—and you need to know that before deciding on what mortgage payment you can afford.
Many people hazard a guess at their discretionary spending. You may think you spend $200 a month on dining out with friends, for example. But if you totaled it up, you may find that it comes out closer to $300.
That’s important, because those who spend more than they earn, or squeak by financially every month, often do it because they underestimate what they’re paying. So, use a personal finance software like Mint or You Need a Budget and enter everything you purchase for at least a month.
As you build your budget, divide it into categories determined by your monthly expenditures. You can tweak this going forward. Tally together what you need for necessities, like rent and utilities. Add together discretionary spending, like movies and eating out.
How are you doing? If you’re within your earnings, great! If not, review your spending for how you can save. Can you eat out less? Maybe cut down on that second or third video streaming service? Brew your coffee at home?
Save, Save and Save Again
Purchasing a house costs money. If you’ve been diligently saving for the down payment, congratulations. If not, one of the most crucial things you can do to prepare for home ownership is saving for the down payment.
Once you’ve got the down payment, continue to save, as you will need moving expenses and a cash cushion. As a rule of thumb, moving and establishing a household always costs more than you think. You may need new furniture or plumbing repairs, so be sure you have an emergency stash of cash.
Establish a Clear Goal
Like budgeting for your expenses, you also need to know your overall savings goal. It’s like creating a fund in the event of losing your job—you want a six-month cushion, at least. You will find it easier to save if you can visualize yourself reaching your final goal.
Scope out starter homes in your area. Look at neighborhoods you’d like to live in with your family. Use an online mortgage calculator to figure out how much you’d be paying for the average starter home per month.
Once you have a general sense of how much your mortgage would cost, as well as utilities, figure out how much you will need for a down payment. While six months’ worth of your salary is ideal, you can also aim for three months to start.
Get Your Credit Score
Most mortgage lenders will only approve mortgages for people with good to excellent credit scores. Good credit scores range from 690 - 720 and excellent credit scores range from 720 - 850. The average credit score in the United States is 679.
Factors that determine your score include:
- History of debt payment
- Total amount of debt
- Length of credit history
- Number of credit sources
Credit scores are relatively easy to obtain, whether from banks, financial software or one of the credit reporting companies, such as TransUnion. In fact, you’re entitled to a free credit score each year, or every 12 months from Experian, TransUnion and Equifax.
Find out your score before applying for a mortgage.
If you have a bad credit score, it’s unlikely a bank will approve your mortgage application. But, the great thing about getting your credit report is that you will find out what categories are pulling down the score. Knowledge is power—once you know, you can fix it. If your record of paying bills on time is poor, for example, try to take care of them the minute you get the bill. Your score will go up.
If your score is average, see if you can increase it before you apply. Many lenders give preferential interest rates and other financial advantages to people with high credit scores, so you want the highest credit score you can get before applying.
Pay Down Debt
There are two main reasons you want to pay down debt as much as you can before purchasing a house.
First, the less debt you have, the higher your credit score is likely to be. The higher your credit score, the more likely your lender is to give you preferential treatment, like a lower interest rate or fewer points and fees.
Second, the less debt you have, the lower your money debt obligations are likely to be. Less debt can free up monthly cash that you can put toward your savings, home purchases or other expenses, instead of directing that money toward paying off interest fees.
Ready to become a homeowner this year? With these five resolutions, you can make 2018 your year by boosting your savings and credit score, as well as becoming a go-to candidate for a mortgage with low-interest and fees.
When you're ready to buy your dream at the Jersey Shore contact our team. We'll help you find the right property, assist with financing and work hard make the closing process stress free.