Buying a home is a monumental occasion. But, before you start the celebration, start the search and gain a clear understanding of what it takes to buy a home and establish a realistic budget. Your budget is the first step to home ownership. If buying a home is your goal this year, make it your priority now. Here are a few tips to get you started:

Generate a monthly expense sheet

Make a list of your current household monthly expenses like utility bills, insurance, food, entertainment and transportation. Now create a second list of additional expenses you will incur as a homeowner like landscaping and lawn maintenance, property taxes, general repairs and upkeep. Don’t forget to leave room for emergencies and retirement savings too. Review your total expenses and see where you can trim expenses between now and when you plan to buy a home. You’ll be surprised at how much you can save by the discontinuation of things that are available in other forms like: land-line telephone and cable or satellite TV.

Understand debt to income ratio

As part of the loan process, you will be subject to the debt to income ratio (DTI) that compares your minimum monthly payments on all debt to your gross monthly income. If your debt is over 50% of your gross income, pay your debt down prior to a home purchase. Your total debt, which includes car payment, housing, credit cards, should not exceed 40% of your gross monthly income. In general, FHA loans will require at least 43% DTI. Use a DTI calculator to determine your debt to income ratio.

Establish and sustain a good credit score

Nothing make lenders happier than a favorable credit score. Establishing credit is important and maintaining a high credit score is crucial in demonstrating to lenders that you are capable of paying back a loan.   If you have a low credit score, take the initiative to pay-off old debt, catch up on any late payments, and pay your bills on time. Consider reducing balances on credit cards to 30% of the credit limit on every account. You should have at least three to five credit accounts, such as a car installment loan, student loan, and a credit card for at least a year or more.   You can check your annual credit score for free at com.

Discipline yourself now for a house payment

Put aside money each month equivalent to a mortgage payment. Not only are you practicing the routine of a monthly payment, you are also saving a substantial amount of money that can be used for a down payment. Lenders will look for patterns in your finances to see if you demonstrate the ability to save. The minimum down payment is 3.5% for a Federal Housing Administration (FHA) loans and 10-20% for conventional loans.

The purchase of home is a life-changing event; make the best of it by being prepared. Start with a budget, and consider it a road map to your future homeowner success. If you want to learn ways to save for a home, contact me and let’s talk!

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