When it is time to plant your roots in a property that you would one day call home you will most likely go through the process of taking out a home loan. However, if you are not financially fit you could delay your homeownership dream. Here is what you need to know when it comes to being financially fit when taking out a home loan.
Get your credit report in order
When it comes to home buying season you want to get everything in order to make sure that the process is smooth when you find a house you have been looking for. To maximise your way into getting onto the property ladder you need to think like a lender. This means combing through your credit report to check to see that all is in order.
This is the first place most lenders will check to see if you are financially fit for a home loan. Lenders can ask to see a minimum of 3 months’ worth of spending to determine your ability to service a loan. You have access to a free copy of your credit report that you can check to see if your finances are on track or if there are any errors on the report.
Are you able to stay on top of your bills?
Being able to juggle various financial commitments gets better over time. But if you are struggling to manage every day bills such as your utility, credit card, and loan payments then you will need to reconsider taking out a home loan. Being unable to pay off these bills can affect your credit score which also plays a part in you being approved for a home loan.
Getting into the habit of paying your bills on time will ensure that bad marks stay off your credit report and it will also help you build a strong credit score which can give you access to better home loan rates.
If your credit score is weak, which means that it is at 0-549, it would be preferable if you spend time building your credit score to a score that is higher which can take a few months to a year.
Your savings will save you
Purchasing a home is a costly step that anyone can make. It is not just the cost of purchasing a home that you will have to factor in, but also moving expenses and the costs of getting new furniture. However, having at least 20% of the deposit saved up before searching for a home can help reduce the costs of purchasing a home. This usually means having 2-3 months’ worth of your mortgage payments saved up.
You will also have to consider if your current budget will be able to add the expenses of purchasing a home to it. You need to consider the possibility of cutting back on some expenses to make managing your new expenses manageable.