Michele's Blog

Now that the holidays are behind us, it’s time for many to start budgeting to purchase a home this year. Here are a few tips to get your budget on track and get you on the road to home ownership.

• TIP 1: Get a clear picture of your finances. This is the starting point for budgeting to buy a home. If you don’t know where you’re spending (and on what) it can be hard to execute any budget. Use an online budgeting tool (there are lots available) or a simple spreadsheet and write down where every dollar goes. Be sure to go back at least 6 months to get a clear picture – even if you can’t account for every dollar in the past. Going forward be sure to keep it updated so you can see where there might be room to shore up your spending.
• TIP 2: Reduce your monthly spending. This is everyone’s least favorite, but likely the most important. Take a look at your expenses and see where you can get rid of “extras.” Perhaps shaving off that super-premium cable package or eliminating cable all together and moving to a less expensive streaming service is an option. Do you still have a land line? Is it necessary? What about apps you downloaded but don’t use any longer? Have you researched pricing for your auto insurance lately? These are just a few of the areas to look at but looking at your spending in step 1 above can help you see where you may be spending valuable dollars you forgot about.
• TIP 3: Practice Making a House Payment. Calculate your estimated monthly mortgage payment (we have some handy calculators here) including taxes and insurance. Take that amount, subtract your current rent obligation, and put the difference in your savings account each month. This serves two important purposes; first, you get used to that payment ahead of actually making that payment, thus reducing some of the “sticker shock” that can happen when purchasing your new home; and secondly you have a ready-made account that is building each month towards down payment and closing costs, as well as moving expenses and furniture purchases once you buy your new home.
• TIP 4: Set up automatic transfers. An easy way to establish a savings is to set up an automatic transfer each month into your HOMEOWNERSHIP savings account. This account should be separate from other accounts and earmarked specifically for your home buying goal. You can set this up to happen for every paycheck you receive, or simply as a monthly lump sum if that works better for your budget. If you have trouble keeping your hands off savings accounts, consider setting up a separate account – even in a separate institution – that doesn’t have easy access for withdrawals. That way you’re not as tempted to dip in for something that isn’t specifically home-buying related.
• TIP 5: Build a strong credit profile. When you’re planning to buy a home, one of the first things you must consider is your credit profile. Be sure to get a copy of your credit report (you can get a free one here), and go through it meticulously. Take this time to correct any errors, and to take a good look at your profile. You’ll be able to see where you might have made late payments (calendar those payments that are due at odd times), see what your credit make-up is (proportion owed versus credit limit) and pay down where you can, check the amount of available credit you have, and the length of your credit history. Getting new accounts (especially several close together) can hurt your profile, but sometimes getting a new account to help pay off several smaller ones at a lower rate more quickly can help boost your score in the short run.

Buying a home doesn’t have to be complicated or difficult with some advance planning and getting your finances in order is not only a good exercise to set you up for success but also a good way to get the details needed to communicate with your loan officer so they can help make your home buying dreams a reality.