With interest rates rising, many people are scrambling to get their finances ready to buy a home in 2022. Sound familiar? If so, keep reading for a bit of common sense advice to help you manage debt and put yourself in the best financial position to buy a home by the end of the year.
Choose your realtor.
There is a reason that your real estate search should start by finding the right agent. An experienced real estate agent can give you tips and advice on how to search for a home-based on your needs and budget (more on that in a moment). Further, she’ll know the area and can help you avoid properties that won’t fit your lifestyle. This is especially important if you run a business from home as you do not want to get hit with city or county fines for running a business in a residential area.
Improve your credit score.
While you are certainly more than a number, the banks will look at your credit score and income to determine whether or not you qualify for a loan and, if so, how much. While you might not be able to improve your income immediately, there are steps you can take to boost your credit score. The most effective thing you can do is to reduce your outstanding balances. You might also ask for a credit increase, which will lower your credit utilization ratio.
Set your budget.
How much you can afford for a home starts by looking at your income. But, you also have to look at other factors, including how much you can put down and the amount of debt you have going out each month. For your down payment, you may be able to find some sort of assistance in the form of tax credits, loans, or grants. Eligibility requirements vary but might include what you do for work, the type of house you’re purchasing, and where it’s located. The higher the down payment, the more home you can afford. A good rule of thumb is that your monthly mortgage payment should be no more than 28% of your gross monthly income.
Eliminate unnecessary debt.
In addition to reducing debt that affects your credit score, you should look at unnecessary expenses. This might include unused streaming subscriptions, dining out, or family entertainment. While these are part of a comfortable lifestyle, when you are trying to save for a home, they can be hindrances to your future.
Protect your business assets by forming an LLC.
As a business owner, you want to both protect your business assets and make sure that you can purchase a home. If you have yet to do so, consider forming an LLC. This has advantages come tax time, and it will also separate your personal finances from those of your business. But, for lenders, when you are employed by an LLC, you’re not considered self-employed, which can make it more difficult to get a loan.
Decide whether or not to sell your current.
If you already own a home, you also want to decide whether you want to sell it or use it as a source of income. If you can make a profit, it might make sense to rent each month and allow it to accumulate additional value. Of course, this only works if you have money to put down outside of the equity in your home. Talk to your lender to find out which option makes the most sense for you. If you can put money down, having a rental property will improve your income. However, if you owe a significant amount of money, it will also burden your debt load.
Buying a home is a process. It does not take place in one day, nor does the process of getting yourself ready so that you look your absolute best to the banks. Start your home hunting endeavors by choosing a real estate agent who won’t push you towards something you can’t afford, and then look for ways to keep, save, and protect the money and any business assets you have.
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