Buying a home is one of the largest investments you’ll likely ever make, so it requires preparation and forethought to get it right. When you’ve decided you’re ready to be a homeowner, the most important thing you can do is to ensure your personal finances are in order. If this is something you struggle with, follow our simple tips to set yourself up for success and be able to buy your Florida home sooner rather than later.
Tips to Know
Establish Your Household Income
The first thing to do is figure out your household income after tax, called your net income. To figure out your net income, you have first to know your gross income. To do this, look at your pay stubs and the amount shown before deductions are taken out is your gross. If you’re paid monthly, multiply this number by 12 to arrive at your annual income. If you’re paid weekly, multiply by 52, and if bi-weekly, multiply by 26. If you work irregular jobs or hours, you’ll have to add up your entire year’s income to get this amount.
Next, subtract any relevant expenses, including retirement contributions, and medical and dental deductions, from your gross income amount to end up with your taxable income. Then, deduct what you owe in taxes, and the remaining number is your annual net income.
Once you’ve established your household income,
Identify Your Expenses
A mortgage will be only part of your monthly bills, so writing out all your expenses is crucial. This includes needs such as the following.
- Credit card bills
- Medical needs
What you have after you’ve deducted these amounts is what is known as your expendable income. One common rule is that only 28% of your gross monthly income should go to house-related expenses and 36% on total debts. Of course, everyone’s situation is different, and there is no one-size-fits-all approach to determining an ideal expenditure amount.
Calculate Monthly House Payment
Now that you’ve compiled your household income and gotten a grip on your overall expenses, it’s important to start planning how much home you can afford with a monthly house payment. It’s important to be realistic but also optimistic about this number. By following more of these steps, you may even be able to see your maximum monthly house payment grow!
Lower Your Spending
Once you have a clear understanding of your monthly expenses, you can decide where to cut back on your spending. Maybe you’re spending too much money on eating out at restaurants or subscribing to services you don’t really need or even use. The more you can save in these areas, the more money you will have to put toward a down payment on your home.
Handle Your Debt
Having outstanding debt isn’t an automatic rejection from being able to obtain a mortgage. But it is far easier to be approved with a higher, better score and at a better rate when you aren’t carrying excess debt. So, take the time leading up to your home purchase to pay down your debt as much as you can. For credit cards, it’s recommended you carry 30% or less of the limit.
Review Your Credit Report and History
Reviewing your credit report is a free and easy proactive step to take every year. Not only does this help protect your identity from fraud, but it also helps you ensure you stay on track with your financial goals of buying a home. Did you know that you get access to a free copy of your credit report every year? You can pull your credit report annually to review information. The report itself can feel overwhelming so a few helpful areas to look out for to ensure accuracy include
- Personal Information: Name, residential addresses (current and past), and employers (current and past)
- Accounts: Financial accounts, no duplications, proper balances, payment schedules, accounts in collections
- Inquiries: Recognizable companies that have pulled a credit check on you
Checking your credit report can give you a great starting point to know where you stand on your credit history and areas to improve your score. By improving your credit score, you’re showing that you are a responsible borrower who repays debts and helps back you for approval in financing.
This step may seem obvious, but one of the best things you can do when you want to buy a house is to save as much money as possible to contribute to your down payment. Generally speaking, a down payment can range from 3-20% of the home’s total price. Your mortgage lender can tell you what your down payment amount should be, or you can use our handy mortgage calculator, but no matter the amount, it will require putting money aside to be ready.
In addition to your down payment, you’ll also have to pay closing costs. So when you’re planning on how much money your new home will cost, this amount must be considered too. The money you pay at closing may range from 2-5% of your home’s purchase price and include fees such as the following.
- Credit report
- Tax services
- Government recording
- Lender’s origination
Buying your home and moving in is only the beginning. It’s also wise to set aside some money for unexpected repairs or maintenance needs that can be shocking if you’re not ready. 41% of homebuyers in the last year are most worried about affording home repairs or maintenance in the coming 2 years. A good rule of thumb is saving 1% of your home’s value. But the more you put into this emergency savings, the better off you’ll be should something unforeseen happen — and any seasoned homeowner will tell you that needed repairs inevitably happen.
Chris Doering Mortgage Is Your Homebuying Partner
Buying a home in Gainesville, Florida, can be overwhelming, but with the winning team on your side, it’s easier and more enjoyable than you may think. At Chris Doering Mortgage, we’re passionate about knowledgeably guiding you every step of the way and getting you into a home you’ll cheer for and love for years to come. Contact our experienced team today to learn more about budgeting for your home and how we can help make it a breeze.