5 Steps to Improve Your Finances and Become A Homeowner
Improving your finances and qualifying for a mortgage is tough without financial literacy. Visit to learn how to reshape your financial situation today!
Do you want to buy a home soon, but fear financial issues will keep you from doing so? Maybe you’ve got less-than-perfect credit, insufficient savings, or poor spending habits, among other things. But when it comes to qualifying for the home of your dreams, preparation is key!
Establishing a solid financial foundation now will increase your chances of getting approved for a mortgage loan, qualifying for lower interest rates and favorable loan conditions. There are plenty of things you can do to improve your finances and make yourself more attractive to mortgage lenders. Here are five actionable finance and budgeting tips to get you started.
1. Pay Your Bills on Time
One of the first things mortgage lenders will look at when considering you for a loan is your credit score. Your credit score is a measure of your creditworthiness in the form of a number ranging from 300-850; 300 being the worst and 850 being the best. A low credit score can make you appear risky to lenders, hurting your chances of obtaining a mortgage or getting the interest rate or loan type you’re after.
Your payment history is among the most significant factors used to determine your credit score. When people don’t pay their bills on time, creditors can report payment delinquencies to one of the three credit bureaus (TransUnion, Equifax, and Experian), which often leads to a reduced credit score.
To avoid a situation like that, make sure you're paying all of your bills on time. Some of these include student loans, medical bills, and credit cards.
2. Build Your Savings Account Automatically
Putting money away in a savings account is a key step in building strong financial habits. Your savings can be used as a rainy day fund, emergency savings, or as a nest egg for your mortgage down payment. But that’s not the only benefit of saving - here are a few more:
- You can earn interest on your funds to grow your savings faster.
- You can live with less worry about how you’d handle financial emergencies.
- Savings account funds are an asset you can use to boost your creditworthiness.
Among the best ways to build your savings is to set up automatic transfers from your checking account to your savings account. You can set your transfers to occur weekly, biweekly, or monthly. By putting the money in a designated account automatically, you're less likely to spend the money and more likely to have it when you need it.
Most bank institutions have apps that allow you to set this up within a minute or two! If you're not sure how to do it, call your bank and speak to a representative.
3. Set a Budget and Stick to It
If you're not used to living on a budget, now is the time to start. In order to qualify for a mortgage, you'll need to show lenders that you're good at managing your money. Do this by setting a budget and sticking to it.
It won’t be easy at first, as change is hard, but it will be worth it in the long run. Not only will it help improve your financial situation, but it will also show lenders that you're committed to being responsible with your money.
Grab a pen and some paper and write down your income and all of your recurring expenses, like food, transportation, and housing. List out your expenses in one column and write your income in another. Then subtract all of your expenses from your income. If you end up with a negative number, it means that your expenses are too high or your income is too low. You’ll need to cut your expenses or take steps to bring in more income - or both.
The key is to stay out of the negative zone and work on getting further into the positive figures.
Not too keen on doing this manually? There are a ton of apps and websites that can help you with this, including Mint and You Need a Budget.
4. Share Your Goals to Foster Accountability
If you're married or in a long-term relationship, share your financial goals with your partner. Doing so could lead you to set a shared goal of homeownership and spark an interest in you both to work toward it.
If you're not in a relationship, that's okay! You can still communicate your goals with a trusted friend or family member.
5. Look at Your Spending Habits and Decrease Expenses
Making small changes to your spending habits can have a significant impact on your finances and help you reach your financial goals. Here are some things you can do right away:
- Build up your credit score by keeping up with recurring payments, negotiating and paying outstanding debts, and using credit cards wisely.
- Eat out less often to save money on food.
- Cut back on unnecessary expenses like cable TV, gym memberships, and subscriptions.
- Become a savvier shopper by comparison shopping. You can start couponing or using cashback apps to save money on groceries and other necessary expenses.
Continue Taking Steps to Improve Your Financial Literacy
Financial literacy is an important skill not only in becoming a homeowner but one that will build a solid foundation for life. Utilizing eHome’s financial literacy courses can help you get started making the improvements you want to see in your life.