Do you want to buy your first home, but have too much debt? An overload of debt can hurt your ability to buy a home in many different ways: cash flow, credit score and loan approval.
If you desire the opportunity to buy a home, try this plan to help you get there.
Start by first determining the amount of money you will need to borrow in order to buy a home in your area. Basically preview the prices of homes you think you could be satisfied with, and deduct any amount you have saved for a down payment.
Then contact a local mortgage broker. Have them give you a good faith estimate of how much it will cost you each month in a mortgage to borrow this money. This will provide you the baseline of what it would cost you each month.
Once you have that monthly amount, deduct the cost you currently pay in rent. The difference is the cash flow you need each month to afford a home. Start preparing yourself now by spending this difference to pay down your debt. By making an extra debt payment each month, you can prepare your budget for the cash flow needed to buy your home and also get rid of debt at the same time.
If you don’t have much debt but are lacking a down payment, you can use the same strategy. While some mortgage companies provide some loans with little money down, typically you have to pay a much higher interest on these mortgages. Therefore it is always best to have at least about 10% of the home’s value in a down payment (or even more).
Simply use this strategy and take that extra money between your rent and the cost of a mortgage payment and put that into a savings account. This will ensure your ability to maintain the appropriate cash flow for a mortgage payment and help save for your down payment at the same time.
Related Articles:
*Five Additional Expenses to Consider When Buying a Home
*Differences Between Buying vs Renting