•  A smart pig on a stack of books
  • Understand your cash flow before purchasing a home

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    Buying a home is rarely a straightforward process, but it seems first-time buyers especially struggle when trying to navigate the purchasing procedure. That shouldn't come as a surprise. Experience, like in any facet of life, plays an important role in the knowledge and understanding of homebuying.

    But what are some tips first-time homebuyers can abide by?

    Mike Winesburg, a former mortgage planner, has a few ideas that homeowners should consider before starting their house hunt. Winseburg told Bankrate a crucial step is understanding finances and cash flow before making such a serious purchase.

    "You should understand a little bit about monthly cash flow," Winesburg said. "If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going."

    Keeping an expense list and sticking to a budget is a great way to obtain a better grasp on one's finances. Prospective buyers should consider jotting down all their monthly needs, such as food and shelter. Additionally, expenses such as entertainment, utilities and insurance should be included.

    At the end of the month, tally up what was spent to get a better idea of an affordable home. Those with hefty expenses and without much room to save might want to consider some of the more affordable options. Americans with low expenses relative to their income could consider making larger investments into a home and might be able to take on bigger mortgage payments.

    Buyers need to remember to save a little extra for closing costs, property taxes and interest on their monthly mortgage loans.

    Buying a home with debt
    With lending standards relatively tight, consumers who are burdened with debt face an arduous task when trying to land a loan, as many lenders view heavy debt as a financial risk.

    But there are ways to lower debt before pulling the trigger on a home purchase. CNN Money reported consumers should pay off their debt with the highest interest rates first, while still paying off at least the minimum on all of their other debt. By paying off the balances with the most interest first, a person can save themselves large interest payments down the line.

    When the debt with the highest interest is paid off, it's important to move to the next highest. However, CNN said it's crucial for consumers to pay more than the minimum on their other balances if they can. When a person only pays the minimum on their credit card bills, they hardly take down any of the interest they owe. The sooner a person can start attacking the principal of their credit debt, the easier it is to become debt free and look like a strong play for lenders.

    Those looking for a housing loan should also avoid opening any new lines of credit prior to their search, according to Realtor.com. The source reported this can look fishy to lenders.

    How will lenders view a buyer's income?
    While Realtor.com reported it's not a good idea to change jobs during the home buying process because lenders need to verify enrollment status at a new company, those who are self-employed might want to think again about staying put.

    Pava Leyrer, a mortgage development manager in Michigan, told Bankrate potential homebuyers who are self-employed rarely get a break when trying to buy a home.

    "How we qualify self-employed doesn't always agree with how the IRS says you can run your business legally," Leyrer said. "So they are finding it harder to get a loan unless they want to show more income to the IRS."



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