Buying a home? 5 ways to have your finances in order before you sign

If you want to buy the biggest, best home possible, here are five tips that will help you maximize the home loan you get to buy your dream home.

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  • Unless your employer is providing housing for you, buying a home should be your family’s top financial priority. Buying your first home isn’t easy. Here are five ways to have your finances ready for that first major purchase.

  • Save for a down payment

  • While everyone's circumstances and situations vary, a general rule for buying a first home is that it will require a down payment of at least 5 percent of the purchase price plus you’ll have closing costs to pay that can easily total 3 percent of the purchase price. The lender may also require you to have a reserve that could total another 2 percent, meaning that you really need about 10 percent of the purchase price of a home before you buy it. For most first-time home buyers, this is the biggest challenge.

  • Establish good credit

  • For your parents, the challenge really was to create a track record of using credit. In the “olden days” when they bought their first home, it was harder to get credit. Credit isn’t quite as easy to get today as it was in 2006, but it is still easier than in the 1970s or 1980s. Your problem today is more likely to be with the “good” part of the phrase “good credit” than with the “credit” part. Make a point to pay everyone on time and reduce your debt before you buy a home.

  • Get out of debt

  • If possible, you should seek to be completely out of debt before you buy your home. This will give you the maximum flexibility for borrowing for your home purchase. If you can afford to stretch your home purchase because you have no other debt, you can get a home that will likely make you happier longer. Staying in your home longer, will not only contribute to a healthy family situation, it will be much cheaper in the long run than frequently moving. One move can easily cost $25,000. Do that 10 times in your life and that adds up to a real impact on your retirement. Do it just once or twice and you’ll preserve much more value for your golden years.

  • Sell the car

  • If you have a car loan, you may want to consider selling the car and either doing without or buying a car that you can afford without a car loan. The car loan could have a significant impact on your ability to qualify for the mortgage you need to buy the home you want — check with your lender. Old cars (seven to 10 years old) can often be acquired cheaply and maintained at a reasonable cost for several years. Even with the maintenance, they are cheaper to own than new cars with big car payments and rapid depreciation.

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  • Demonstrate income stability

  • If you are employed, the lender will want to see that you have been with your current employer for at least two years. If you have not been with your employer that long, they will want evidence that there was a short gap in employment and that you ended up in a position with comparable or higher pay. If you are self-employed, the lender will want to see a long history of consistent earnings as established by your tax returns. That challenge can be troubling because your tax returns were prepared to provide evidence that your income was as low as possible.

  • There is not much in the world that is more exciting than buying a home. The experience will be more fun and more successful if you are well prepared. Have a ball!

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Devin Thorpe, husband, father, author of Your Mark On The World and a popular guest speaker, is a Forbes Contributor. Building on a twenty-five year career in finance and entrepreneurship that included $500 million in completed transactions, he now champions social good full time, seeking to help others succeed in their efforts to make the world a better place.

Website: http://www.yourmarkontheworld.com

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