Dreaming of Owning a Home? You May Need to Fix Your Finances First

Dreaming of Owning a Home? You May Need to Fix Your Finances First

Owning a home is a common dream for Americans, but that dream can feel out of reach when your finances are less than perfect. We’re here to tell you that it doesn’t have to be this way. Your past mistakes don’t have to make homeownership impossible, especially when you use these recommendations to recover from those mistakes and get your finances back on track. 

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Research Your Local Housing Market 

Before you can budget and plan to buy a home, you need to figure out how much you will be spending. Taking a look at local listings will give you a better idea of median home prices in your area, as well as whether listings sell below or above the asking price. If you’re in a competitive housing market, you will need to have your finances in order if you want to buy a home here. 

Another important data point to pay attention to is the average down payment percentage. Do the math and you will see that homebuyers here need a fairly sizable down payment to secure a new home. If your finances are not in order, saving for a down payment can be more difficult, but it is possible if you plan your budget out carefully. Maybe you can cut out cable and a few other monthly subscriptions? If you currently rent your home, you could also think about taking on a roommate to reduce your monthly expenses.

Review Your Current Credit Reports 

The second step you should take is to pull copies of your credit report from Equifax, TransUnion and Experian. Mortgage lenders will use one or a combination of these reports to qualify you for a home loan and to determine your interest rate. Consumers are entitled to one free copy of each annually and can access these reports and scores online. Check your reports for errors and any information that should be disputed. Then start making a plan to pay down debts. 

Lenders will also look at your debt-to-income ratio before approving you for a loan, as well as your credit score. This is why reducing debt is so important for hopeful homebuyers. You may be able to consolidate credit cards or loans to lower interest rates and decrease debt, or you can also commit to making larger or more frequent payments. If your debt-to-income is considerably high, putting off your decision to buy a home may also be a wise choice. 

Take a Look at Your Mortgage Options 

You should proceed with caution when it comes to this next step. That’s because while it is possible to get approved for a home loan with limited income or a low credit score, taking on such a large debt will make it so much harder to clean up any financial messiness. There are special programs aimed at making homeownership accessible for more Americans and lenders that work with those with bad credit. Even if you are approved for one of these programs, you may still end up paying a fortune in interest or struggling to make monthly payments. 

Once again, if your finances are still in bad shape you may need to put off your plans to buy a home. As disappointing as the prospect may be, cleaning up your finances is guaranteed to make the homebuying process easier. Know that this process will take some time and a lot of discipline, but peace of mind and lower interest rates are well worth the extra effort.  

Everyone makes mistakes. If you’ve made mistakes with your finances in the past, this doesn’t have to keep you from buying a home. You just need to assess the damage and come up with a plan to repair it. Even if that plan means delaying your purchase for a few months or years. Trust us when we say that homeownership will be so much sweeter if you’re not constantly worried about financial stability. 

Courtesy of: Megan Cooper