Prepare for home buying with a financial check-up

The routine check-up: we’re used to regularly taking stock of those important items in our lives to make sure everything’s working correctly and efficiently. You probably get a regular physical exam from your doctor or take a vehicle into a dealer for a routine inspection. But, when was the last time you checked on your finances?

Taking an active approach to your financial wellness will help you be better aware of your spending and savings habits and may reveal areas of improvement. Plus, if you’re considering a big purchase, like a new home, having a baseline for your financial health will likely save you time during this journey.

Before you get too far into the home buying process, consider these items as a starting point for your financial health checklist.

Of course, knowing how much money you make on a yearly, monthly, or weekly basis is going to be a crucial part of your financial picture—but other facets are also important, such as how frequently you’re paid and how much of that income is channeled into necessary expenses.

In the context of buying a new home, take stock of your income and its potential to change over the next six months to a year. Maybe you’re self-employed or your income is based on gig work and can have periods of fluctuation. You can more effectively prepare for your homebuying journey by knowing the cadence of your income and anticipating potential change, especially since lenders will review these key elements during your application process.

As you consider a home purchase, keep in mind what your recurring spending habits look like and how they will need to adjust when you take on home-related payments.

If you’re effectively covering your necessary expenses and have a remaining surplus of funds, it may make sense to reallocate what’s available for savings initiatives, depending on how much you’ve already saved and how quickly you want to purchase a home. In the homebuying process, your savings can help cover important expenses like your down payment or closing costs, so having an established “nest egg” can help you prepare for the homebuying journey. 

While budgeting, consider implementing simple methodologies to cover a wide range of your finances. For example, a methodology like the “50/30/20” rule can help provide a structure for your savings while balancing other important expenses.

• 50% of your budget can go toward needs (like housing, utilities, insurance, etc.).
• 30% can be more disposable for items like entertainment and travel.
• 20% can be set aside for savings, debt reduction, or an emergency fund.

This is only one example of a simple budgeting technique you can consider as you perform your financial check-up.

Before you buy a home, a credit check will be a key component of your lender’s application process. Familiarize yourself with your credit health to ensure there are no surprises.

For example, knowing how debt affects your credit score can help you know what to expect: too much debt may drive down your score, as could too few lines of credit or activity.

If possible, start taking steps to lower your debt to get you in better standing with lenders. For example, you could pay more than your minimum on your credit cards and avoid taking on new or additional debt. You can explore additional tips for building your credit score here.

Now that you’ve started your financial health check-up, how are you feeling? If you see any areas of concern or improvement, you can learn more about preparing your finances here. If you are ready to start exploring your homebuying options and estimate how much you may be able to afford, get a rate quote today.