Homebuyers Guide: Are You Financially Prepared?

Before you search for a home, you’ve got some economics homework to do. How’s your credit? Do you have a budget, and what’s your debt-to-income ratio? You’ll want a mortgage preapproval and savings, too. We talked to Keith Davis, financial management specialist at Neighborhood Housing Services of Greater Cleveland, about which important financial prep steps to take before you start looking at homes.   

Cue Up Your Credit.
First, find out your credit score by going to creditkarma.com or to individual agency websites, including Experian, Equifax and TransUnion. Davis recommends establishing a minimum credit score of 620 — but the higher, the better. “It’s not just about getting into a home. You want to get a nice, low mortgage interest rate,” he says.  

Build a Nest Egg.
You’ll need cash for a down payment, closing costs and moving expenses. Not to mention, you’ll need to pay for a general home inspection. Based on Federal Housing Administration guidelines, first-time homebuyers could put down 3% to 4% of a home’s purchase price. Conventional loan down payments are generally 20%. “It’s so important, especially for new homebuyers. Even if you have a certain amount saved, you should continue to put money away,” says Davis.   

Get Educated.
Neighborhood Housing Services offers homebuyer education courses that prepare potential buyers for the process. This free financial coaching can help you successfully navigate the rollercoaster of buying a home. “We spend a lot of time on monthly budgets and financial goals, and we identify ways to become a better spender,” says Davis.