It should come as no surprise that a home is a MAJOR purchase. And when you’re at that point, it’s easy to look at what you’re already spending in rent or your mortgage payment and think that’s it, you’re ready to pay the same or possibly a little more. But that’s actually just the beginning!
Budgeting for homebuying is an important process. Having an idea of your overall budget (not just what you spend on housing) should definitely be the place to start. The National Foundation for Credit Counseling offers a great Budget Worksheet to help you out. Is your money being spent on things you want or things you need? Knowing just the answer to that simple question can help you set all of your financial goals – including homeownership – and work towards those goals by putting all of your money to its best use.
Getting prequalified for your loan is another piece of the puzzle you’ll want to take care of. Whether you’re buying your first home or your 50th, prequalification gives you an idea of what type of loan you’ll be eligible for and how much money lenders will be willing to loan you. It can also give you negotiating power when you find the house of your dreams! A word to the wise, though…No matter how much you get prequalified for, stick to the amount you feel you can comfortably afford to avoid getting yourself into financial trouble later.
And last but certainly not least, you’ll want/need to know your credit score. Credit plays a large part of how you get prequalified for a loan and an even bigger part in actually getting the final loan amount approved. If there is anything that is incorrect on your credit report, or if you have any outstanding lines of credit that are no longer being used, you’ll need to get those fixed ASAP. Even before you start any of this, be sure to mind all of your bills’ payment due dates – continually making late payments lead to a lower credit score which can lead to a larger down payment, a higher interest rate or disqualification for the loan altogether when you’re ready to buy a home.