David Higgins' Blog
Want to buy a house for the first time? Create a budget, and you can move one step closer to transforming your homebuying dream into a reality.
Now, let's take a look at three budgeting tips that every first-time homebuyer needs to know.
1. Don't Wait to Start Saving for a Down Payment
In most instances, a down payment on a home ranges from 5 percent to 20 percent. With a large down payment, you may be able to reduce your monthly mortgage expenses.
A lender may be more willing to provide you with a favorable mortgage if you can afford an above-average down payment. This means if you have plenty of money for a down payment, you could save money over the life of your mortgage.
2. Take a Look at Your Outstanding Debt
Student loan charges, credit card bills and other outstanding debt may make it tough for you to get the financing that you need to buy a house. Fortunately, if you pay down your outstanding debt as much as possible, you can boost your chances of buying your dream house.
Evaluate your current spending and make cuts if possible. For example, if you dine out several times a week, it may be more cost-effective to buy groceries and cook your own meals. Then, you'll have extra money that you can use to pay off outstanding debt and save for a house.
3. Understand Your Credit Score
Do you know your credit score? If not, you may be missing out on opportunities to eliminate outstanding debt and increase your home savings.
You are eligible for a free annual copy of your credit report from each of the three credit reporting bureaus (Equifax, Experian and TransUnion). Take advantage of this perk, and you can receive insights into your credit score.
If you obtain your free credit reports and find outstanding debt, you should try to pay off this debt sooner rather than later. Because the longer that you wait to pay off outstanding debt, the longer it may take you to acquire your ideal residence.
Furthermore, if you discover errors on a credit report, contact the reporting bureau immediately. This will enable you to fix any report errors before you get a mortgage.
If you need additional assistance as you map out a homebuying budget, it often pays to collaborate with a bank or credit union. In addition to providing you with multiple mortgage options, a lender will offer expert recommendations to help you budget for your first home purchase.
Lastly, don't hesitate to reach out to a real estate agent as well. This housing market professional is happy to help you get in touch with the best lenders in your area. And when you're ready to kick off your inaugural homebuying journey, a real estate agent can provide you with the support you need, precisely when you need it.
Use the aforementioned tips, and you can establish an effective homebuying budget.
Life can get so busy that no matter what you do, you can’t seem to keep up. Between work, school, the kids’ sports, and activities, and a little bit of fun, those housekeeping and personal finance chores can slip past. Soon, you find yourself trying to catch up because a bill got missed or an undone task turned into a complicated maintenance issue.The solution? Or, at least a partial answer: bring on the automation.
Things to automate
Regular monthly bills: Take a single day and set up all your regular incoming bills for automation. Go online to each vendor and set up their free auto-withdrawal from your account. You can do this for your cellphone bill, your cable or satellite bill, your Internet bill, auto insurance, electric and gas bills, water and trash, car payments, homeowners or rental insurance, association dues, health and fitness club dues, school bills, and any other bill you have with an automated withdrawal option. You can set these up to go from a single credit card that you “pre-fund” (see below) so that you don’t have to worry about having enough money in your checking account. You can also set this up from a secondary checking account.
It’s vital that these automated payments do not pull from the same account that you use for incidentals. The last thing that you need is to overdraw or overdraft an account and then have your automated payments bounce.
Now, list all the remaining monthly outgo. This list includes things like rent or your mortgage payment, loans, credit card bills, and anything else that you can’t automate through its own system. For these bills, go into your account and set up Bill Pay. The way that most bill pay systems work is that they can send electronic payments to specific companies, so always use the electronic version if it’s available.
If no electronic link is available for the payment you need to make—if your bill is from a small, local company, for example—then set up a bill pay check delivery. It is important to note the due dates for check delivery and arrange your payments to be early just in case there is a postal delay.
Protect your arrangements
Once you have this setup, create a separate account for your “spending” money. This is the account that will have your grocery, gas (unless you pay by card), eating out, entertainment, and other casual spending money.
Set up your bank to text you anytime money leaves this account, and to send you your balance once a week (or daily if you spend from it often). That way, you’ll always know if you can afford that latte or nightcap.
If you’re saving to buy a home, make sure to keep those savings in a separate account and automate the transfer from your incoming paycheck into that account too. If you need help knowing how much you need to save up, talk to a real estate professional in the area where you want to buy.
When you get pre-approved for a mortgage, you may be excited to find out that you can afford a lot more house than you thought you could. Don’t be so fast, this is just what you can get a loan for. The bank doesn’t know a lot of factors about your finances. While you most likely had to provide a ton of income verification statements and information in order to get this ballpark figure, relying solely on the pre-approval number can put you in a bind when it comes to your finances. Your lender doesn’t know certain things like how much you spend on groceries or how much your cell phone bill is each month.
What Lenders Consider
Lenders look at the health of your credit history, how much income you have and how much debt you have. These are the big factors that tell your lender about how much house you can afford. Yet, your home lender is not your financial advisor and can’t help you with household expenses and the like. When thinking about what price range of home you really can afford, consider these factors beyond the bank:
Your Monthly Budget
Your spending habits will ultimately affect your ability to pay the monthly mortgage bill. If you’re spending all of your disposable income, then you may not be able to afford much at all beyond what you’re already paying for rent. You don’t want to stretch your finances so thin that you won’t be able to afford food!
Owning A Home Requires Additional Costs
Lenders do factor into their number the cost of homeowner’s insurance and property taxes, but don’t consider other things like utility bills, trash pickup and home repairs. All this can certainly add up when you’re a homeowner!
Your Savings Is Nonexistent
If you’re unable to save any money at all if you’re a homeowner, then you’ll be in trouble. You need money stashed away in case of unemployment or an emergency. You also may be planning for things like retirement and future costs like children’s education. For the initial purchase of a home, you’ll need upfront payments available for the down payment and closing costs. However, you’ll need some more savings beyond that for everything that life brings your way!
You Have Big Plans
Are you thinking of quitting your job and heading out to start your own business? Now may not be the best time to buy a new house. These changes could have a huge impact on your finances and leave you unable to pay your mortgage. Your lender won’t be asking about these plans, so you’ll need to know what the future holds (for the most part ) in order to keep your own finances secure.
The bottom line is that anything that could leave you financially stressed is not a good idea. Considering that buying a home is one of the biggest purchases you'll ever make, you want to be sure that you keep your finances in check during the purchase process.
Buying your dream home should be simple. Unfortunately, challenges may arise during the homebuying journey, particularly for those who fail to budget accordingly.
Establishing a budget before you begin your home search is paramount. With a budget in place, you can explore houses that fall within your price range and move closer to finding a great residence that you can enjoy for years to come.
Ultimately, creating a homebuying budget can be easy – here are three tips to help homebuyers establish budgets.
1. Consider your utility costs.
Although you may be able to get pre-approved for a mortgage and determine exactly how much you'll need to pay for a house, you'll still need to account for utility expenses month after month.
Electricity, heat and other utility costs can add up quickly. However, a diligent homebuyer should have no trouble estimating his or her monthly utility fees.
Examining your current utility expenses can help you understand how much you may wind up paying in utility charges at your new address. Also, don't forget to consult with your real estate agent, as this professional may be able to provide details about the average utility costs associated with a particular residence.
2. Manage your debt.
If you decide to purchase a "fixer-upper," i.e. a home that requires extensive home repairs, you'll likely need to commit substantial time and resources to complete home renovation projects. Thus, you'll want to consider any home repair tasks that you may need to complete at a new address and budget for them before you make an offer on a house.
In addition, knowing your credit score can help you understand your debt. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies (Experian, Equifax and TransUnion), and each report will provide information about any outstanding debt. That way, you can learn about your debt and find ways to minimize it prior to purchasing a residence.
3. Account for closing costs and miscellaneous expenses.
Home closing costs will include your loan origination, title insurance and appraisal fees and often range between 3 percent and 7 percent of your total loan amount. You'll want to account for these expenses as you establish a homebuying budget to ensure you can secure your dream house without delay.
Spend some time learning about all of the expenses that may impact your monthly home expenses too. For example, if you purchase a condo, you may face monthly homeowners association fees in addition to your mortgage costs. Or, if you plan to have a baby in the near future, you'll want to consider how the costs of raising a child may impact your ability to cover your mortgage expenses.
If you ever have concerns or questions about establishing a homebuying budget, be sure to consult with your real estate agent. Remember, your real estate agent is available to help you in any way possible and will do what it takes to ensure you can establish the right homebuying budget.