(Exercising Your Mind) By Cameron Ward

Purchasing a home within the next six months to a year means you need to focus on your financial health. Financial health involves your savings and credit score. If you need help raising your credit score before you can buy a home, you may need a quick plan.

Start With a Budget

Before you can begin saving money for a home, you need a budget. Budgeting allows you to allocate funds where you need them the most. When creating a budget, you should give about 50% of your income to the essentials. Do not spend over 30% of your monthly income on the things that you want.

Write your budget out to keep track of it. Collect your financial paperwork, such as bank statements, credit card bills, utility bills, investment accounts, receipts, loan statements, and tax forms to better understand the state of your income and financial health.

Know how much home you can afford. There are calculators available to help you estimate your monthly payment, including insurance and taxes. List all of your monthly expenses and determine where you can save money and where you need to spend more money.

Pay Down Your Debt

If you want to purchase a home within the next six months to a year, you may need an optimal credit score. To ensure you have good credit, start to pay down your debts. If you feel like you chip slowly away at your balances, you may want to try new first methods.

Consider the snowball method. In this method, focus on the accounts with the lowest balances and pay them down. Make minimum payments on your other accounts and pay higher on the card you want to pay off. If you worry about interest, you may want to start with cards with the highest interest first.

You do not want to use more than 30% of your credit at any one time. If you have a higher ratio, you have to focus on lowering it. Some debts include student loans, credit card debt, and auto loans.

Seek Help When Necessary

Generally, when buying a home, you have to put at least five percent of the overall cost down. Some people believe you need 20% for the down payment, but fortunately, this is not always the case.

When dealing with overwhelming debt, experts suggest you find help. You may want to seek help from a credit counseling service. You can find credit counseling services in various places, including financial institutions and nonprofit agencies. Before you purchase a house, look into different home loans.

As a business owner, try to prepare your taxes early. Often, lenders look at your taxes and you need to prove your income and ability to pay for the home. Be careful about accuracy in reporting income and your tax write-offs. You may want to create a financial team of planners, real estate agents, and brokers to help you navigate the real estate market.

Consider Purchasing a Smaller Home

Purchasing a smaller home has a number of financial advantages if you have debt and are on a tight budget. For one thing, smaller homes are generally more affordable than larger homes. Additionally, a smaller home is usually easier to maintain and keep clean so you may not have to hire as many home maintenance professionals. Also, a smaller home is often more energy-efficient than a larger one so you can save on your utility bills.

If you’re planning on moving to a smaller home, you’ll likely have to spend some time decluttering. If you’re unsure about what you want to keep, you can temporarily store items in a self-storage unit. There’s a large variety of storage options in L.A., and if you shop around, you can find 5’ x 10’ units for under $100 per month.  You do not have to feel suffocated by debt.

If you want to buy a home within the next year, there are some easy steps to follow to build your credit and save money. Create a budget, pay down debt, research home loans, and consider purchasing a smaller home.

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