Buying a home is one of the most important financial steps any person or family will make in their lifetime. Beyond simply defining your lifestyle, owning a property can determine your financial stability and even help you build additional income streams (such as in the case of rental properties).
However, being financially ready to buy a home and take on a mortgage can take time! That is why, if you are planning to take the first step up the property ladder in 2023, you should consider getting ready for this important project now. In this guide by dailywisely.com, you’ll find a few actionable steps to achieve your house-buying goals this year!
Start by Taking a Hard Look at Your Finances
Start by getting an understanding of where you stand financially. To do so, assess your bank and credit card statements to find inefficiencies and overspending. This analysis can also offer insights into your spending habits and how to start saving more. After this, you need to check Homes for sale in sarasota FL.
Tackle Your Debt and Reduce Your Debt-to-Income Ratio
Once you have a clearer idea of your financial health, tackle your debt. When applying for a mortgage, traditional lenders and banks will look at your debt-to-income ratio to assess your creditworthiness and risk as a borrower. This ratio describes what percentage of your after-tax income is redirected each month towards repaying debt, and it should be lower than 28%.
If your debt is too great or out of control, consider implementing strategies such as the avalanche or snowball methods to reduce the amount owed.
Bulk out Your Down Payment
Next up, look at how much of a downpayment you have already saved and deploy strategies to bulk out your initial deposit. Today, most buyers will strive to put together a 20% down payment for their first home, a strategy that allows them to save on private mortgage insurance and interest rates.
However, depending on your financial situation and on the specifics of the property you are looking to buy, you might be able to take advantage of government-backed home loans such as VA, USDA, and FHA mortgages, which require a minimum of 0-5% down payment.
Stabilize Your Employment
Another aspect lenders will consider when assessing your eligibility as a borrower is your employment history and income. Be ready to provide your lender with details about your employers and annual earnings, as well as pay stubs and bank statements.
Learn How To Make the Most of Your Credit Card
The average credit card balance for Americans in 2022 was over $6,000, and this amount is only rising. However, when used wisely, your credit card represents a powerful tool to boost your credit score, afford larger purchases, and manage debt.
To take advantage of your credit card and its reward system, make sure to only use it for purchases you can afford, make more than the minimum payment each month, and repay your balance in full as soon as possible.
Get Pre-Approved for a Mortgage
Once you have improved your finances and you can count on a high credit score of 620 or above, it is time for you to get pre-approved. Through the pre-approval method, you’ll know how much you can realistically spend – a valuable insight that can guide you in your home-buying process.