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There is no quick means of making a decision to buy your first house. It is easy to fall in love with the house of your dreams that fits your personality and needs, but there is some work that needs to be done in order to make that dream into a reality. Buying real estate is not only a big decision; it is a life-changing decision that needs planning.
When you begin planning for your new home, it means establishing a budget and knowing where you stand financially. Creating a budget and understanding your finances will make it a lot easier for you to begin the process of taking that leap into buying real estate.
Track Your Debits
The first step to establishing your budget is gathering all your monthly bills. This means your credit card bills, rent, utilities, student loans, and household expenses – everything. Separate all your bills into these categories so you can easily identify the needs versus wants in your spending.
Buy a log book or accounting book to keep track of all your expenditures. At the top of the log write down your beginning balance for the month, this would usually mean your first paycheck. Then continue listing your expenditures. When you receive another paycheck, if you are paid twice per month, list that as a credit and continue tracking your expenditures as debits. Your balance at the end of the month will give you an idea of where you stand financially.
Assess Your Debits and Credits
Once you have a nice log of your debits and credits for an entire month, you can now begin assessing where your money is going. For example, are you spending too much on eating out or the movies? Are you buying too much new outfits or new technology gadgets? This can be identified as the areas considered “wants”, which you can decrease or eliminate and put that money into a savings.
As you will need a certain percentage of the cost of a new home as a down payment, it is important that build your savings by cutting back on your wants. If you have excessive credit card bills, then you want to take that extra money and pay down those credit cards before you start saving.
Build Your Savings
Once you have established your budget, any monies left over in your budgeting account should be placed in a savings account. These monies should not be used for any emergencies, but for your home purchase. You can establish another savings account as an emergency fund. The amount that you have saved will be reviewed when you begin the home buying process.
Check Your Credit Report
A lender will check your credit history and credit score, so before he or she does this, you should do this on your own. There are many free sites on the Internet that can provide you with this information free of charge. Knowing where you stand in the financial market will allow you to attack your monthly budget to make positive changes to your credit history. This will also ensure that you get the best interest rates on your home mortgage.
In order for you to qualify for a home mortgage, your credit history, as well as your income and what you owe will be reviewed to come up with your debt-income ratio. How much you have saved and your work history will also be analyzed. Be prepared when deciding upon buying real estate so that there are no hidden items that will hurt you qualifying for a home purchase.
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