Are you dreaming of homeownership? Purchasing a new home takes a lot of financial preparation and will likely be one of your most expensive investments. You’ll want to ensure you have enough saved for the down payment, closing costs, and inspection fees, and you’ll want to make sure that your credit score is where you want it to be before you apply. Now is an ideal time to look at your financial situation and to start preparing accordingly.
Here are five areas to focus on.
1. Build a Budget. We get it. It’s hard to cut things out that you enjoy. Take a look at your bank accounts to see what expenses are coming out. Take note of your monthly expenses, like your cell phone bill, groceries, your car payment and insurance, or your rent and utilities. Are there any subscriptions you can cancel, such as video streaming or food delivery services? Determine how much you need to pay your bills and other monthly expenses, and consider putting the remaining portion of the left-over money into your First Bank savings account.
2. Open a Savings Account. As mentioned earlier, it’s a good idea to put some of your left-over money in your savings account. This will help you save more as you won’t have as easy access to spending it like you would with money in your checking account. Additionally, consider automating your savings. This will help you save more as a portion of your paycheck will automatically be deposited directly into your savings account.
Do you need to open a savings account? Learn about First Bank’s Savings Account Options.
3. Set a Savings Goal. Setting a goal will help you keep yourself accountable. Determine how much you’ll want or need to have saved by the time you plan to purchase a house and work toward meeting that goal. Consider what your price range is for a new house. Aim to have 3% of the home's value saved for a down payment; however, if that isn't possible, speak to a First Bank Mortgage Home Loan Advisor about programs with little money down for homebuyers. Keep in mind that credit values and the cost of the home will vary the amount you’ll need saved. Additionally, will you want to buy furniture and home decor to furnish the home? You’ll also want to make sure you factor in some additional cash for any home repairs that may be needed.
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4. Track Your Spending. Often, we are spending more than we realize. While a small purchase might not seem like much, they can really add up over time. Keep a log of your extra expenses and review them at the end of the month to see where you can be saving additional cash.
5. Get your Credit in Check. Your credit score plays a critical role in applying and being approved for a mortgage. Your credit score helps lenders determine your level of risk, and a higher credit score usually indicates a lower interest rate. If your credit score isn’t where you’d like it to be, make sure you’re making your monthly payments on time and paying down the revolving credit balance.
Other ways to improve your credit score include keeping your card usage below 30% of your approved card limit and refraining from opening new credit cards or auto loans. Each time you apply for one of these, your credit will receive a hard credit inquiry which can lower your credit score. One last good practice to improving your credit score is to review your credit report for any errors or inaccurate information. You’re able to receive your credit report for free from the three major consumer reporting companies every 12 months.
Preparing for a home purchase takes a lot of financial preparation and consideration. You’ll want to make sure you have a budget created and a safe place to keep your money. You’ll also want to check-in with your credit score and work on improving it, if needed. For more information on how First Bank can help you reach your financial goals, contact a trusted First Bank advisor.
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