Before you take part in it, you’ll need to make sure you’re ready to buy a home. Here are some important financial steps to take on the road to purchasing a place of your own.
Pay down existing debt
Chances are you’ve racked up some amount of debt in your lifetime, whether it’s of the auto, student loan, or credit card variety.
The more debt payments you have to contend with on a monthly basis, the harder it will be to swing a monthly mortgage payment on top of them. Therefore, if you have a lot of debt, paying it off is a must.
Boost your credit score
You need a decent credit score to qualify for a mortgage, especially if you’re hoping to snag a favorable interest rate on that loan. If your credit score is poor, it’s a sign that you shouldn’t be seeking to take out a mortgage in the first place.
But if your credit is great then you’re in a pretty good position to buy. If your credit score needs a boost, make a point to pay all incoming bills on time.
Your payment history is the single most important factor in determining your score, and on-time payments are what bring it up. And just like paying off debt can help your debt to income ratio decrease, so too can it help your credit score improve.
Much have a 10 -20% down payment on hand to become a homeownership
You’ll generally need to come up with 10-20% of your home’s price as a down payment. If you can’t come up with that at lease 10% down payment, cut back on expenses for a year to hit that threshold. Or, find alternative ways to boost your income.
Have emergency savings Fund
As a homeowner, you need emergency savings for when disasters strike, like your heating system malfunctioning or your roof needing a major repair.
If you have enough money for a 10 -20% down payment but forking over that cash will leave you with an empty bank account, then it’s clear you’re not ready to buy a house.
But if, following your down payment, you still have enough money to cover the equivalent of at least three months’ worth of essential living expenses, then you’re all set.
Just don’t forget that in addition to your down payment, you’ll be liable for closing costs on your mortgage. You’ll most likely need to pay to move, too. So just make sure you have a healthy cushion before buying, and if you don’t, sock away more cash before moving forward.
Get established in your career
It takes time for homes to appreciate in value, and it also takes a few years of living in a home to recoup the amount you spend on mortgage closing costs. If you’re not settled in your career
That’s why you should really spend a year or two in your current job or industry before committing to buying a place of your own.