8 Ways to Improve Your Budgeting Habits Before Buying a House
You’ve made the decision to buy your first home, or perhaps you want to trade up or downsize. Whatever your plans are for this stage in your life, it’s always a good idea to take a look at your budgeting habits before you apply to buy or refinance a home. What are you doing that works well? What can you improve upon? The stronger your finances look to a lender, the better your chances will be to get approved for a mortgage at a competitive rate. And whether you use an online app, a spreadsheet, or good ol’ pencil and paper, you can create and follow a budget.
Here are 8 commonsense tips to improve your budgeting habits and help you get closer to your financial goals for the future.
- Determine Your Monthly Take Home Income
You probably know what you earn an hour or per year, but the number you want to focus on is your take home pay after taxes and other deductions. You can pull this from your paycheck stubs or direct deposits. If the number varies, add up all the deposits for the year and divide by 12. That’s your monthly take home pay.
- Track What You Spend Every Day
Take a month and track your daily expenses. Use a little notebook or record on your cell phone everything you buy with cash, or debit cards such as lunches out, gas, morning coffee, clothes, and gifts. This can give you a reality check on what you spend and highlight areas where you might be able to cut back.
- Record Monthly Expenses
List all your monthly expenses such as rent or mortgage, utilities, car loans, credit card payments, cable, groceries, insurance, etc. For the items that vary, take a 12-month average. Be sure to include a line item for “other” for the cash expenses you tracked in your notebook. And don’t forget any items that you might pay only quarterly like water bills or property taxes.
- Reduce Expenses or Increase Revenue
Subtract your monthly expenses from your monthly take home income. This will show you how well you live within your means and whether you have money to save or use to pay off debt. It can also highlight where you might be wasting money. Do you really need that fancy coffee drink? At $5 a pop, even if you only treat yourself three times a week, that’s $780 in a year. And if your expenses seem to exceed your income, you need to get things in check long before you apply for a mortgage.
- Create an Emergency Fund
It’s usually the unexpected car repair, temporary job loss, or medical expense that throws off any well-planned budget. It’s important to add a line item in your expense budget so you can put aside money to save about six months’ worth of living expenses.
- Save for the Future
Whether you are saving for a new house or retirement, putting aside money each month will help you reach your goal more quickly. You can arrange for a certain amount to be automatically deducted from your paycheck and put into a special savings or money market account. Then it will be less tempting to spend it.
- Pay off Debt
The more long-term debt you can pay off the better you will look to home loan lenders. If you owe money on several credit cards, you may be able to consolidate to the lowest rate. Or use the snowball method to pay them off. Let’s say you pay $100 per month on a high interest credit card. Once that card is paid off, add that $100 to your usual monthly payment on another card.
- Review Your Credit Report
Before you apply for any home loan, be sure to obtain a free copy of your credit report and fix any errors. The report will not include your current credit score, but most credit card companies provide this for free to their card holders.
Are you ready to buy a home? NewDay USA may be able to help you get a VA mortgage with no money down. We are a nationwide VA mortgage lender who has been helping active military personnel, Veterans, and their families achieve their financial and housing goals for more than 20 years. Call us today at 800-405-4178 to learn more about any of our VA home loan products.