For most people, buying a new home is the biggest purchase that you’ll ever make. Therefore, it’s important to make sure that your personal finances are in order before you take this huge leap into homeownership.
With these expert tips from Ryan Homes at Brunswick Crossing, you’ll be able to fine-tune your personal budget to get the best mortgage for your money, raise your credit score, minimize monetary concerns, and develop enough financial freedom to buy your dream home:
- Figure out your net income (also known as take-home pay) after tax. How much money do you actually have? Check your pay stub, ask your company’s human resources department, or use an online income calculator to find out how much money you’re left with each month after federal and state taxes.
This final amount is how much money you currently have to spend each month, and it might increase with your homeownership tax breaks. This is a homeownership perk that many first-time home buyers don’t know about, so ask your Ryan Homes consultant to explain the concept to you.
Make a list of all monthly expenses. You can do this with the help of Brunswick Crossing’s Budget Spreadsheet. We’ll ask you to calculate what you spend on your current utilities, car payments, groceries, and other expenditures.
Once you figure out your monthly expenses, you can decide where it's best to cut back. This financial improvement will give you more money to put into your savings account and toward paying off credit cards and loans. That brings us to our next point...
- Try to pay off debt. While it’s definitely possible to buy a new home with debt, it’s much easier to be approved for a mortgage when your credit score is top-notch and your debt is minimal.
Start by paying off any department store credit cards, which are harmful to your credit score. If you have a Visa, MasterCard, Discover, or American Express credit card, be sure to keep the balance below 30 percent of the maximum credit limit on the card. Ask your Ryan Homes consultant for more tips.
- Calculate the cost of homeownership compared to your current rent or free housing. A good rule of thumb is to budget about 25 percent of your net income for the entire monthly payment, which includes principal, interest, property tax, home insurance, and HOA fees. Remember, net income is “take-home pay”.
Tip: Start getting accustomed to the new monthly payment by setting aside that amount each month, as if you were already paying it. This will make it easier to form the habit.
Fine-tune your wish list. Thoughtful consideration pays off, and it helps to start with the future in mind when looking for a new home. Think about its floor plan, location, and features/upgrades that can help a growing family or busy commuterThis will help prepare you to budget for the correct amount of house that you can afford in comparison to your current finances. Don’t cave in to the temptation to buy more house than your five- to ten-year plan needs. Even though you may think this will be your forever home, needs change. When it comes time to resell, a home that’s not the smallest nor the biggest will attract the largest audience.
- Be prepared to make adjustments. In order to achieve the goal of homeownership, you have to create a budget. However, what most people don’t realize is that the budget should be flexible enough that you can still have fun.
- Designate an emergency fund. Establishing an emergency fund is a smart component to any financial plan. Doing so helps avoid the temptation of dipping into the home buying account if your car suddenly needs to be replaced or if your pet needs expensive surgery.
Tip: Once the move into your new home is complete, it's important to keep that emergency account fully funded -- with a few months of living expenses -- in the event that something unexpected comes up.