The ability to pay your bills on time and still have money left over at the end of the month makes you financially solvent, which is important when considering the future purchase of a home. Being able to save money is vital, whether you intend on paying cash or using a mortgage when you buy. Proof that you pay your financial obligations on time and save money can lead to better mortgage rates and terms.
Getting back on your feet after a financial disaster takes time. It involves patience, hard work and teaching yourself new habits. The sooner you start, though, the sooner you’ll have the keys to your new house.
Set up a budget
If you don’t have a budget, the time to create one is right now. Yes, it’s time-consuming and sticking to it once it’s created is challenging. The creation aspect is easier if you use online tools available to you, but a spreadsheet will work as well. Some banks now even have special apps available to help.
First, determine how much money comes into the household every month. Consider all sources of income from all family members.
Then, get out all your bills and make a list, breaking them down into fixed and variable expenses. The former includes your mortgage payment or rent payment. The latter group will include utility payments, groceries, and incidentals.
Plan on taking a month to keep track of every penny spent, from your bill payments; petrol in the car, down to the latte you pick up on the way to work in the morning. At the end of the month, enter these totals into the budget under “expenses.”
By now you’ll have a picture of where your money goes every month and an indication of where you may be wasting money. Of course, you’ll want to cut out the waste first, directing those funds to the rest of the plan.
Pay off debts
Prioritise your debt and bill payments every month. Along with paying your monthly bills, ensure that secured debts are paid first – such as car or mortgage payments. Pay at least the minimum monthly payment on credit card accounts and unsecured loan repayments, except for the one with the highest interest rate. Pay a little bit more on that one every month until it’s paid off and then start working on the one with the next highest balance. (Sorted.org.nz advisors say it’s best to leave the credit card at home, that way you can take the time to weigh up if the purchase is essential or just nice to have).
Paying your bills on time, which you will do with the assistance of your budget, and paying off debts helps lower your credit score. A credit score ranges between 1-1000, a good score is 500 or more and can be taken into account when applying for a mortgage. You can now find out your personal credit score easily with new online tools.
Make changes in your spending habits
After a few months of budgeting you’ll find areas in which you can cut back on spending. Some of these might include taking the bus to work instead of driving, brown-bagging at lunch time instead of eating out and being a bit more frugal when you shop. Be brutal in your budget cuts because each one will get you closer to being able to afford your new home.
Make more money
Cutting your budget expenditures and paying down debt aren’t the only ways to move quickly down the road toward homeownership. Finding ways to make more money, whether it’s volunteering for overtime hours at work, taking on a part-time job, or selling unused items on Trademe, the extra cash will push you faster and further down the road to home ownership.
Once you have your debt under control it’s time to start saving money. Unless you pay cash for the home, you’ll need money for a deposit and lawyers fees. Then, there are all the extras you’ll want to purchase for the home after you move in.
Cleaning up your finances isn’t easy and saving money may be challenging. Just keep that dream home top-of-mind, though and you’ll remain motivated.
About the Author: The above article on how to get financially ready to buy a home was written and provided by Brent Palmer, a local leader in the field of Richmond and Nelson Real Estate sales, marketing, advanced technology for home selling, and social media. You can contact Brent Palmer here, or at 027 544 9921.
He has helped many people buy and sell homes in the Nelson, Stoke and Richmond areas for years, and would love the opportunity to help you as well.
Thinking of selling your home? I have a real passion for helping people sell their homes in our Nelson and Tasman Region, as well as the marketing, social media & advanced technology for home selling that goes along with it. I’d love to have the opportunity to sit down with you discuss how we can work together to get you the best price.
I help people buy and sell real estate in the following Nelson and Tasman towns & neighbourhoods: Wakefield, Brightwater, Hope, Appleby, Redwood Valley, Mapua, Stoke, Tahunanui, Atawhai and of course, Richmond and Nelson City. Connect with Brent on Facebook and pretty much everywhere else.
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