Looking to Buy a House? Here’s What to Do Now to Help Manage Debt Before Becoming a Homeowner

Guest blogger: Leslie Campos

The U.S. homeownership rate is 65.5%, according to the  U.S. Census Bureau. More people than ever are buying homes and financing their purchases with a mortgage. If you’re thinking about buying your first home, you need to make a financial plan. Today, Blueprint Real Estate Advisors LLC explains what you should do six to 12 months before buying your first home.

Repair Your Credit 

About a year before you plan on buying a home, make sure you know where you stand when it comes to your credit. Get a copy of your free credit report and check over all of the three major agencies’ details about your credit history. Look for any errors or negative marks that could prevent you from financing your dream home.

Reduce Debt 

Before you qualify for a mortgage, you should also make a plan to reduce your debt. You can qualify to borrow more and get a lower rate if you aren’t carrying too much debt. Capital One notes that lenders want to see a debt-to-income ratio that is lower than 36%. Take on debt with the highest interest rate, like credit card balances, first to make more room in your budget for a mortgage payment in the future.

Update Your Business Structure

Business owners must also get their finances in order before buying a home. Make sure your tax returns reflect an accurate amount of income that could qualify you for a mortgage. Separate your business and personal income to make it easier for lenders to see your financial picture. Additionally, consider structuring your company as an LLC to get tax benefits and reduced liability. If you’re forming an LLC, you can take care of the paperwork yourself or better yet, use an online formation service that’s already familiar with the regulations for your state; check BestLLCServices.com reviews to find the best service in your area.

Lower Spending 

Next, you should aim to lower your spending ahead of time to make room in your budget for a mortgage payment. Cut out unnecessary expenses like eating out, movies, entertainment, and streaming services to give yourself more flexibility.

Save a Down Payment

Most mortgages have down payment requirements. If you don’t have anything saved yet, work on putting aside money each month for a down payment. The recommended down payment to avoid PMI is 20%, however, some loans allow for as little as 3.5% down.

Determine How Much You Can Afford

Another key step to take before buying a home is to figure out how much you can afford. Look at your monthly income and talk to a mortgage broker to see what homes are in your price range. Then, when you’re ready to start looking you can focus only on properties within your budget.

Partner With a Real Estate Agent 

Another expert to consult is a real estate agent. An expert real estate agent can give you advice about what to expect in the future housing market, offer some tips to get the house you want, and find you a home that suits your needs. The current market gives sellers an advantage, so a talented real estate agent is a must for potential buyers.

Talk to Financial Pros

If you are overwhelmed with debt and need help paying it down and getting your finances in order before applying for a mortgage, ask a professional for help. Consider talking to a debt counselor, a wealth management pro, or a financial advisor for more specific advice. 

Your goal of homeownership can happen if you focus on healthy financial habits in the year before you buy a property. Reducing debt, lowering your spending, changing your business structure, and working with a qualified realtor can help you save money on a mortgage and get the home you want.

Blueprint Real Estate Advisors LLC has sold homes in all price ranges from starter homes and luxury condominiums, multi-family properties, and investment properties, totaling over $42M in career sales. Call 808-278-0285.

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