9 steps for preparing your finances to purchase a home

Once you have decided to purchase a home in Illinois, the next steps are to determine how much you can comfortably afford for a home, determine your ability to secure a mortgage,  and identify any problem areas with your credit or finances.

• Develop a family budget that factors in your current situation and your ideal future situation. Include estimates for unknown expenses such as car repairs, medical expenses, repairs or upgrades to the home you are purchasing, future children, etc. Don’t forget to include your predictable costs like: current rent, current utilities, current car payments, current credit card/debt payments, etc.
  To receive the full list of family budget recommendations our realtors have created, fill out the contact us form to the right and mention that you would like our family budget recommendations for buying a home in IL.
• Reduce your debt: Lenders look for a total debt load of no more than 36 percent of income. What does this mean? It sounds like mortgage and real estate agent jargon the first time a home buyer reads it. Essentially, the banks offering you a loan want to know that all of your monthly minimum payments for your debt do not exceed 36% of your income every month. To figure this out, add up all your required payments on every bill you owe each month. Then take that number and divide it by the total of the amount of your paychecks every month after taxes. If the result is greater than 0.36 you are in good shape. If not you have to either reduce your expenses or increase your income.
• Reduce your expenses: Little expenses add up. A tip many home buyers find useful is to either write down everything you spend for one month or to ONLY use a debit/credit card for all expenses in a single month and then review the statements. If you do this for a single month, you will find a lot of “wasted” money. If you review a year worth of statements, you will find thousands of dollars you can save! (Biggest Tip – How much do you eat out… don’t forget the $4 fast food meals that add up really quickly!) Everyone can reduce their expenses, but if you are one of the people thinking, I can’t cut my spending, then you need to increase your income.
• Increase your income: It may be necessary to take on a second, part-time job to get your income at a high enough level to qualify for the home you want. If you don’t want to do that you should ask for a raise at your current employer. Most people are afraid to ask for a raise, but statistics have shown that employees that actually ask for raises (with justification) get them. Explain to your boss all the things you do for the company that are not part of your job description, or how you have outperformed your current pay rate and you will be surprised to see your employer is willing to pay you more than you make. Be sure to go in with documentation of what you do and what it is worth in your area.
• Save for a down payment: You can usually get a better rate and lower overall cost if you put down a 20 percent down payment. This said, there are many programs offered through banks or FHA programs that offer as little as 0% down payments to secure a mortgage. Bowers Realty Group realtors have recommended mortgage providers that can walk you through the mortgage programs available.
• Create a home fund: Decide on a certain amount per month you want to save, then save it in a separate bank savings account as a home fund and deposit money into it every time you pay your monthly bills.
• Keep your job: Having a job for less than two years may mean you have to pay a higher interest rate.
• Establish a good credit history: Get a credit card and make payments by the due date, if you don’t have one. Do the same for all other bills. Pay off the entire balance promptly. Most importantly, don’t make any big purchases right before you purchase a house. Your mortgage professional will explain how this can impact the mortgage you are applying for. Wait until after you purchase your home before you make big purchases like a new car, furniture, etc.
• Request a free mortgage preapproval through one of our recommended real estate mortgage professionals. Mortgage preapprovals are an important part of the home buying process.

Bowers Realty Group provides this information as a guide only. Bowers Realty Group and its realtors are not mortgage professionals, financial advisors, attorneys, or other professionals to provide financial advice. The information provided on this page is for informational purposes only. The information on this page is not intended to provide financial or legal advice. Contact your financial advisor, mortgage professional, or attorney for financial advice.