I giggle to myself when most first-time homebuyers call me. They excitedly open the conversation with their HGTV-inspired wish list—sparkly new stainless steel appliances, granite countertops, spacious deck overlooking a lush green yard, master on the main, and on and on. They have dreamed of every detail for their home, except one important thing—THE FINANCES! It still amazes me how many people watch HGTV for home buying advice, when in fact, a better start is CNBC, the finance channel. I know, I know, not as picturesque, but equally as important.
To help our homebuying hopefuls, I will address the two biggest stumbling blocks that families face in preparing to purchase their first house:
- Carrying too much debt
- A lack of money to put toward the down payment
Let’s talk about building a strong plan to jump over these hurdles to homeownership.
Look your money in the face. Seriously, have a staring contest with your budget. Create a simple list of where your money goes each month—rent, car insurance, student loans, utility bills, and even groceries. Split the list into two columns. Label the first column “Must Pay” and the second one “Pay Off”. Costs like rent and utilities go in the first column, and your credit cards and personal loans go in the second. Arrange the “Pay Off” column by balance, from the largest amount to the smallest amount.
Attack the smallest debt first. Always remember to make the minimum payment for every bill. In the “Pay Off” column, circle the bill with the smallest balance. Every month, in addition to the minimum, add an extra $50, $100, or $500 to the payment. Whatever amount you can comfortably afford. Repeat this monthly until the item on top of your list is paid in full. Once the first bill is gone bye-bye, take the money you have saved and go to the next item and follow the same steps.
Cut expenses. You would be surprised at how many extra bucks are hidden away in your budget. Do you Uber and Lyft instead of taking MARTA? Kids in three or four activities plus after school program? How about buying lunch every day? Save those extra dollars! Packing a self-made lunch twice a week is a great start. Tell little Johnny he can only play one activity until he gets his own room in his new home. Teamwork makes the dream work.
Build an emergency fund. Emergencies are inevitable. Windshields get cracked, rent goes up, or a medical expense catches you by surprise. Set aside money into a savings account as you cut your expenses. Here’s the trick: open the account at a bank or credit union separate from the one you usually use. This prevents your eyes from being tempted as the numbers grow! This account will be super useful in the time of a storm and is much better than swiping credit cards.
Lower your interest rates. Call your credit card company and ask for a lower interest rate. Also inquire about new promotions or special deals. If they do not step up to the plate, then get a new card and transfer the balance. Keep the old card open to help your credit score, but pay down your debt faster on the new card with the lower interest rate. Another option is to visit your local credit union to request a debt consolidation loan, which offers an interest rate almost half of the one on a credit card.
Celebrate your success. High five yourself when you pay off a bill! Reward your progress with a treat or a fun event. Keep it under $100 and smile as you enjoy it.
Best of luck on your homebuying journey. Develop great money habits that will slay the grumpy debt monster weighing down your wallet and credit report. Use the extra savings to grow your downpayment nest egg. When you are ready to make the big leap into making your home dreams come true, call Atlanta Realtor Penny Brown at (678) 933-8326. We are here to help!