Purchasing a home is one of the most significant financial commitments you'll make, and being well-prepared is crucial to avoid money stress and complications.
According to mortgage industry expert Melody Wright, the housing market is expected to face a potential downturn as soon as next year, making it even more important to take strategic steps before buying.
Appearing on Fox Business, Wright predicts a substantial market decline, possibly up to 10-12%, which could significantly impact home values. Coupled with rising interest rates and economic uncertainties, the housing market may face challenges similar to those seen during the Great Recession.
If you plan to buy a home in the next six months, careful preparation is essential to safeguard your investment, so if you plan to buy a house soon, here are a few things you should do now.
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1. Get pre-approved for a mortgage
Getting pre-approved for a loan will let you know how much money you can borrow from your lender for the house of your dreams.
In addition, sellers may be more comfortable knowing you can afford their home. In a competitive market, that can be a significant advantage.
Own a car? Here's 7 warning signs you're paying too much for car insurance. 2. Save for the down payment
Before shopping for homes, ensure you have saved enough for a down payment.
Consider putting that chunk of cash in a stable, safe place, such as a high-yield savings account. With any luck, you'll even make a little extra money in interest as you wait to find your home.
3. Organize your finances
Buying a home is a great reason to focus on your finances. A home is expensive to purchase, and it's often costly to maintain as well. So make sure your investments, accounts, and other sources of cash are in good shape.
Estimate how much your monthly expenses will be. Then, create a budget so you know where that cash will come from when you own the house.
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4. Build an emergency fund
Saving for a down payment is important, but don’t do so at the expense of building an emergency fund.
An emergency fund is an essential resource that can help you cover the cost of sudden expenses. This fund can be a lifesaver when you must pay for emergency repairs.
5. Boost your credit score
Your credit score is a crucial part of getting a loan. Those with good credit scores are more likely to be approved for a loan and usually get the best terms on loans.
Try to engage in good financial behavior in the six months leading up to a home purchase. Pay your bills on time and pay off debts. And don’t open any new lines of credit, which could ding your score.
On the other hand, don’t close existing credit card accounts, which can hurt your credit score. Use your credit cards responsibly, and don’t make any big financial moves.
6. Pay down debt
Paying off debts puts you in a stronger financial position as you enter into a major purchase, such as buying a house. Clear away debt so you can focus on the new home.
Not only is it easier to manage your day-to-day finances if you're debt-free, but carrying less debt also can boost your credit score.
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As you prepare to shop, focus on neighborhoods that interest you. Narrow your price range so you know which types of houses you should be looking at.
By eliminating specific neighborhoods from consideration and establishing certain price points, you make the shopping experience easier.
8. Get documents together
A lender might ask you for many financial documents, so make sure you anticipate what they need and pull the information together now.
Gather documents such as your W-2 form and previous tax returns that show your income. Grab copies of bank statements or investment statements showing how much money you have.
A lender might use this information to confirm that you can make monthly mortgage payments.
9. Factor in closing costs
Remember that closing on a house doesn’t just mean bringing a down payment to the table.
You’ll also need cash for closing costs. Closing costs include application fees, homeowners insurance, title insurance, points, and the title search fee. But there are many others.
Pro tip: If you are worried about saving for closing costs, consider a side hustle or part-time job to make extra cash .
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10. Find a real estate agent
Chances are good that you'll want a good real estate agent on your side to look out for you while you shop for a house.
A real estate agent will help guide you through the home-buying process. Don’t be afraid to interview different agents until you find the one who is right for you and understands your wants and needs.
Bottom line
Putting some plans in place now can help you get the house you want six months down the line.
Try to get out of debt and take other steps to shore up your finances. Decide where you want to live and what type of home you want to live in.
Making moves like this today should make buying a home easier in a few months.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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