The Commonwealth Blog

Wednesday, December 27, 2017

Resolutions to Help You Save for a New Home

It’s finally time to purchase a home in 2018. It’s the right time in your life, you’ve got a stable source of income, and you’re ready to make the jump to homeownership. Now it’s a matter of saving and getting your finances in order. Before the New Year, make some resolutions to get your down payment ready and get your credit in shape.

Come Up with a Monthly Budget

Once you own a home, you’ll have new costs associated with homeownership, such as property taxes, home insurance, possibly homeowner’s association fees. Variable expenses you currently pay for electricity, gas, and water may increase when you move into a home. Determine your new budget based on the estimated costs for your new home and live with it for a few months. You’ll likely have to make changes to your spending habits, like how often you go out to eat, where you shop, and more. It’s important to start living within your means.

Raise Your Credit Score

Credit history has an important impact on your mortgage application and subsequent loan terms. Improving your credit can increase your chance of approval and get you a better rate. You can improve your credit score by taking positive actions like paying down your debt, removing any negative marks from your credit report, and paying down credit card balances.

It’s especially important to pay down any high-interest debt you have, like personal loans or credit card balances that carry over from month-to-month. Most experts also recommend holding off on applying for new credit cards or auto loans in the months leading up to a mortgage, as it can be a red flag to lenders.

Start Saving for Your Down Payment and Emergencies

You’ve hopefully already started saving for your new home if you want to purchase one in 2018, but it’s time to make sure you have enough to cover all the important costs in the purchase. You’ll need enough for a down payment (which can range from 3.5% to 20% or more), closing costs, and loan origination fees. You’ll also need money for inspections, appraisal, moving costs, and other fees.

It’s also important to have a separate emergency fund for anything that could go wrong. While an inspection should hopefully find any major issues with the home, you’re now responsible if you’re suddenly confronted with a broken HVAC system, faulty plumbing, or water heater issues. Plan for having at least 3-6 months of your expenses at hand. This fund will also make you more attractive to lenders, as you have more money in the bank.

Get a Raise or Secondary Income

Your income is an integral part of your mortgage approval. It’s how lenders determine how much home you can afford. Increasing your take-home pay will allow you to have a larger loan, along with getting you more money. If you’re up for a raise at your company or have enough time to work towards one, this can be helpful in the mortgage application process. Having a secondary source of income can also be helpful if it increases your income significantly. Remember that consistency is also important to lenders, as they like to see you’ve been with your employer for at least a year or two.

With these resolutions, you’ll be on your way to purchasing a new home in 2018.

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