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So you’re ready to buy a home, and now you’re wondering how to get your finances in order for the big purchase. Hopefully you’re taking a good hard look at your finances and planning to purchase long before you begin your search process. Preparing your personal finances for such a major purchase may take weeks, or even months.
The good news is that whether you’re taking a look at your finances months or days before speaking with a realtor, there are several ways to manage your finances in anticipation of such a large purchase.
The first step in the home buying process is not speaking to an agent, but completing a financial audit. Sit down and have a good hard look at your finances by understanding exactly how much money you have coming in and how much is going out on a monthly basis. If you have outstanding loans (such as automobile loans and student loans) identify the total amount, the monthly payments, and the length of time required to complete the payoff. Do the same for credit card debt.
This is exactly what a lender will do once you’re ready to apply for a loan, and it’s far better to know before meeting with a lender whether or not you’re likely to be approved for a loan. Before you begin looking for a home, you will want to know the price range of home you can purchase and the approximate monthly costs. Otherwise, you may feel unduly restricted or you may be overly optimistic about your appropriate price range.
Caring for your credit remains an important financial practice regardless of if you intend to purchase a home. However, the better your credit, the more options you have for a home loan. A lender custom tailors a loan for you.
When applying for a home loan, your mortgage lender will be taking a look at your credit history and your credit score. While your credit history is a more detailed report on your overall purchase and payment history, your credit score tells lenders at a glance whether or not you are a reliable borrower and spender.
If your credit score is lower than 740, you will benefit by taking steps to improve your credit report. There are several ways to raise your credit score in preparation for large purchases.
Now that you’ve taken a good hard look at your finances, it’s time to figure out how much you can afford to spend on a home.
Most mortgage lenders use the 28-36 rule when determining how much of a home mortgage an individual or family can afford to pay. We generally recommend that your costs do not exceed 28 percent of your gross monthly income and that your other expenses, such as credit cards, car payments, and student loan payments, not exceed 36 percent of your gross monthly income.
Once you’ve determined how much home you can afford based on your gross monthly income and expenses, it may be in your best interest to remain conservative. Just because you can afford to buy a more expensive home doesn’t mean you should. Don’t ignore future significant costs such as the potential for vehicle repairs or college funding. If you anticipate buying an automobile or needing to pay for education, take that into account even if you have not already incurred those expenses.
One of the wisest things you can do in the home buying process is to choose an agent with experience and contacts in the contacts in the local market. A good agent helps you find the best home in the appropriate price range. Realtors have unique skills and a variety of tools, including their experiences with previous transactions, which ultimately provide the assurance you will make the best purchase for you.
READ MORE: 4 Reasons Why Having a Real Estate Agent Works
As the oldest real estate firm in Memphis, Marx-Bensdorf, REALTORS has established a reputation as a leader in the Mid-South real estate market. Our realtors are dedicated, professional, and experienced, and their hard work has been recognized as such. That’s why our firm has been awarded the distinguished Memphis Most Award four times over. Are you ready to start the homebuying process? Contact one of our agents today!
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