Get Your Finances in Order: To-Do's
Before starting your search for the perfect home, it’s a good idea to get your finances in order. In most cases, the process of buying a home involves applying for a mortgage, and you’ll need to have all your ducks in line to get approved.
1. Develop a household budget. Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.
2. Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt — car loans, student loans, and revolving balances on credit cards — down to between 8 and 10 percent of your net monthly income.
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Selling one, buying another
In a perfect world, you sell your old home and buy the new one on the same day. Given that things rarely turn out perfectly, here are some things to keep in mind as you work to negotiate the sale of one house with the purchase of another.
Time it right
Fall and spring are the best times for homes to move and you want to consider the season of the year when buying and selling. And if the closing dates aren’t going to coincide, a gap rather than two mortgages is the better. Its easier and usually cheaper to find temporary housing than juggle two mortgages.
Selling first
Selling your home before buying a new one minimizes financial hazards. Even if you have to find temporary housing, its generally cheaper than two mortgages. Get an appraisal first thing off the bat. That way you’ll have a good idea how the sale of your home will effect your purchasing power on the new one. This will help keep you from over extending your mortgage abilities.