Preparing Your Finances For Homeownership: Cracking The Code In 6 Strategic Steps

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Feb. 16 2024, Published 8:00 a.m. ET

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So, you’ve decided it’s time to take the plunge into homeownership and the excitement is absolutely palpable. Congratulations! But before you start imagining yourself sipping coffee in your dream kitchen with Italian marble floors and perfect subway tiles, it’s crucial that you get your financial ducks in a row first. It’s a big decision to purchase a home but the process to get there doesn’t have to be painful. You can prep your finances for the homeownership journey in six strategic steps.

1. Check Your Credit Score

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Your credit score is the backstage pass to favorable mortgage rates. As the first step in your homeownership journey, Transunion recommends checking your score and addressing any red flags on your credit report asap. If your score needs a boost, pay down your credit card balances and ensure you’re paying all your bills on time. A clean credit report and a higher credit score can save you thousands in interest over the life of your mortgage, making it a small effort with a significant payoff.

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2. Get your budget in order.

Before you start house hunting, you’ll want to get crystal clear on your buying budget. Take a closer look at your monthly income and expenses – what’s essential? What’s negotiable? This isn’t about depriving yourself of avocado toast – it’s about understanding where your money actually goes. Once you’ve got a grip on your spending habits, you can make adjustments to save for your future home.

3. Save, save, and save more.

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Now that you’ve got the lowdown on where your hard-earned cash is landing (oh hello, DoorDash and impulse buys), it’s time to channel your inner financial guru and start building that nest egg (aka down payment). The idea of forking out a whopping 20% for a down payment might sound like climbing Everest but fear not – even saving a smaller amount can open doors for you. Trust the process, and before you know it, you’ll be ready to make that down payment without breaking a sweat.

Pro tip: Set up automatic transfers each month – out of sight, out of mind (until you’re ready to make that down payment).

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4. Get pre-approved, not just pre-qualified.

It can be easy for some to get pre-qualified for a mortgage, but pre-approval is the golden ticket. Reach out to lenders and find out what documents they need from you to get the ball rolling. It may take a little time to pull all these important records together but reputable resources like CreditKarma can help you streamline the document prep phase of the pre-approval process. Once you have all your info collected, you can share your financial details and ideally get a pre-approval letter. This letter not only gives you a realistic range for house-hunting but also shows sellers that you mean business. Plus, it eliminates the potential heartbreak of falling in love with a house that’s out of your financial league.

5. Factor in hidden costs.

Owning a home comes with more than just paying a mortgage note. There are property taxes, homeowner’s insurance, maintenance costs, and possibly homeowner association (HOA) or condo fees, depending on what type of home you purchase and where. Don’t forget to factor these into your monthly budget – it’s always better to be pleasantly surprised by extra savings than caught off guard by unexpected expenses.

6. Explore a first-time buyer program.

Many lenders offer first-time homebuyer programs that can lighten your financial load. These programs may include down payment assistance, lower interest rates, or reduced closing costs. For example, with an FHA loan, you could be eligible with a less-than-stellar credit score and may only need to come up with 3.5% down to qualify. Research what’s available in your area and take advantage of these variables. You’ve worked hard to save – now make your money work for you!

By budgeting wisely, saving diligently, polishing your credit score, and getting pre-approved, you’ll be on the fast track to unlocking the front door to your dream home. Take a deep breath, crunch those numbers, and get ready for the exciting adventure of turning a house into your home.

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By: Carri Helman

Carri is a recovering long-term corporate employee turned freelance copywriter. Although she earned a degree in business and spent almost 20 years in automotive manufacturing and quality engineering, she knew the 9-to-5 corporate grind wasn’t her final destination and launched her copywriting business in 2021. Carri is also a multiple myeloma care partner and advocate, working closely with global organizations and pharmaceutical companies like the International Myeloma Foundation and Pfizer. She is also the content manager and editorial director for the nonprofit Health, Hope, 𝄞 Hip-Hop, which focuses on health equity in underserved communities.

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