Getting your finances in tip-top shape is a crucial prerequisite to home buying and selling. If your finances are in good order, there is a much better chance that things will go your way in the process of home buying or home selling. Read on for tips on getting your finances in order for home buying or home selling.
Guide for home buyers
Buying a home typically means that you need to secure a mortgage loan to finance it. This is the main reason why you need to get your finances in shape before you even start hunting for the home you want.
Get pen, paper and calculator out so you can start computing and planning. First, write down how much salary you are taking home every month. Then on a column beside it, list your expenses: How much are you paying for your credit card bills, loan repayments, utilities, gas expenses, grocery costs, your kids' school fees, etc.?
Be sure to write down everything and then total your monthly expenses. Subtract your monthly expenses from your monthly salary. The difference is roughly the amount of money you can utilize for mortgage payments each month. This simple exercise is a good place to start in the planning stages.
Since you can now see approximately how much you can spare every month for mortgage repayments, you will be able to decide more wisely on the amount of money that you think you can afford to borrow. This will help you decide how much you can afford to pay for a home and this, in turn, will make your house-hunting considerably easier.
Of course, you may be planning to get a better-paying job or you may be slated for promotion. Determine the approximate date when this will happen. How much will your monthly take-home salary be then?
Naturally, you shouldn't forget to write down any additional expenses, if any, that may be incurred due to that change. You may get a better-paying job but this new job may be located elsewhere, in which case your gas or travel expenses may rise.
Subtract your new monthly expenses from your projected new monthly take-home salary. The difference is the amount of money you can use for mortgage payments in case of a promotion or a change in employment.
Knowing the future changes in your financial situation will help you decide on the type of mortgage you should get. You must also determine how long you are likely to stay in the home you will buy.
The longer you plan on staying, then the more sense it makes for you to take a long-term loan. If you are not planning on staying long in your home, you are advised not to get a mortgage with extended loan repayment terms – at least not the kind that will penalize your for early repayment.
Finally, you should obtain a copy of your credit report before you apply for a mortgage. This way, you can ascertain the accuracy of your report, you can determine how good your credit standing is and thus you can decide which among your loan choices you are likely to get approved for.
Guide for home sellers
Selling your current home also requires good planning. The very first step is to estimate whether you can sell your home at a loss or a profit. In many cases, only in the latter case are you advised to sell your home.
Get your paper, pen and calculator out so you can find out whether now is a good time to sell or not. On the first line, write down your home's current market value; get your home assessed if you don't have this figure.
On a column beside the above, list down the face value of the mortgage, the face value of other loans you have taken with your home as collateral, and the out-of-pocket expenses you have incurred when you took out the mortgage or other supplementary loans.
Add up all of these to come up with the total cost of your home and mortgage; if you are going to have to pay a penalty for early home repayment, then you must add the penalty to the total, too.
Now, subtract the total cost of your home and mortgage which you have just computed from the current market value of your home. If this figure is positive, then selling your home may be a good idea.
If the difference is negative, then you may have to undertake some home renovations or other improvements to raise the current market value of your home and thus be able to potentially sell it at a profit.
In any case, the amount of money you have spent on procuring and maintaining your home is a good benchmark for setting a price on your home when you decide to sell it.
Know your current financial situation
Once you have estimated whether it is a good time to buy or sell and have settled on a range of prices for either endeavor, it is then time to take a through look at your credit report and overall financial situation.
In the case of selling your home, calculate a bottom price that you are willing to take if and when you sell the home. Try to stay firm on this price. Estimate how much you would gain or lose at different prices. Also, take a look at the expenses associated with listing and maintaining the house while it is on the market.
In the case of buying a home, take a look at your current credit report and see how you will look in the eyes of a lender. Be aware of you outstanding debt, as well as open credit lines and any other potential items of interest. Be an expert when it comes to your own credit report.
