Each year when spring comes around, we roll up our sleeves to give our homes a deep cleaning. Your finances may also benefit from a spring cleaning if you plan to buy a home this year or next. Now’s a good time to put your finances under a microscope to make sure you’re on track to turn your dream home into a reality.
Here are some tips that can help you prepare for a home:
A recent survey published found that less than one-third of Americans keep a detailed household budget. A spending plan is the key to managing your cash flow and reaching your down payment savings goal. Don’t worry, no need to pull out an old school spreadsheet to manage your budget.
There are apps for that.
SpendBook and Mvelopes are two of many apps you can try to gain control of your spending from day-to-day; both have high user ratings. SpendBook is available for iPhone and Mvelopes is compatible with both iPhone and Android.
A debt-to-income ratio higher than 50% is a sign you could have more debt than you can afford. Consolidating your debt with a low-interest personal loan is one way you can crush consumer debt sooner. According to the last weekly report from Creditcards.com, the national average for credit card interest is 15.19% APR. In contrast, personal loans can have interest as low as 6% APR. (Keep in mind, to qualify for the best interest rates you may need an excellent credit score, FICO score 750 or above). NerdWallet is a free resource where you can compare many personal loans at once. The site has a long list of personal loans with a breakdown of terms, interest rates and qualifying criteria.
Student loans can be a huge roadblock when applying for a mortgage. If you’ve diligently built your credit since taking out student loans, you may be able to qualify for a lower interest rate on this debt as well. Two lenders that offer student loan refinancing with competitive interest rates include Earnest and CommonBond. Prequalifying to check for rates with either of these lenders won’t affect your credit score.
Two top factors that impact your credit score are payment history and credit utilization. Improve either one and there’s a good chance you can increase your score.
You have a few options for removing negative payment history. Double check for any incorrect or incomplete records on your report. If you find an error, dispute it with each credit bureau and the company reporting it. If negative history on your credit report is correct, you can try sending a goodwill letter to a creditor requesting removal of a negative record. The second factor, credit utilization, is the amount of revolving credit available to you that you’re currently using. For example, if you have a credit line of $2,000 and a balance of $200, your credit utilization is 10%. The target for credit utilization is under 30%. If you pay off debt to get below this threshold, you may see a nice boost in your score.
Interested in learning more about your mortgage options or prequalifying for a home loan?