72% of first-time buyers rate their financial fitness as good to great. If you’re not part of the 72%, read this step-by-step action plan to help you get there.
Here are the four most common financial barriers impacting homebuyers, and steps to overcome them.
Problem Area: Too much debt
Actions:
- Consider a low-interest consolidation loan and use it to pay off your higher interest rate credit cards and lines of credit. To learn all about consolidation loans, check out our blog here: (https://blakewilsongroup.com/tips-tricks/consolidating-debt/)
- If a low-interest consolidation loan isn’t a possibility, make a list of all your debts and the associated interest rate. From there, prioritize paying off the debt with the highest interest rate first. Chances are this will be a credit card rather than a line of credit. Make the minimum monthly payments on your other debts while you focus on paying down your high interest balance. Once that debt is cleared, focus on the next item on your list. Celebrate after each debt is paid off so you maintain your momentum!
- Accelerate your debt reduction plan by reviewing where you’re spending. The easiest way to do this is to print off the last 3-6 months of bank and credit card statements and literally analyze the results. How much is going to your morning coffee? How much is going to dinners out, taxis, etc.? You may be surprised at how easily you’ve been spending hundreds of dollars a month on things that truly aren’t necessary. This is a great opportunity to create a responsible monthly budget. There are lots of great online resources to help you develop your personal budget.
- Take your credit cards out of your wallet so you aren’t easily tempted. Big ticket items can appear within reach when you know it’s only a credit card swipe away. When your credit card isn’t within reach, you’ll likely think twice. Remember that budget you made? Now is the time when you should be consulting it, making sure you stick to your limit in each of your budget categories. For the first month or two, consider it a “living document” that can be moderately adjusted within a reasonable range as you figure out the true cost of your expenditure on items like groceries, gas for your commute, etc. Don’t beat yourself up if you need to adjust figures slightly – this is one of the key reasons budgets fail…they start off being unrealistic.
Problem Area: Low Credit Score
Actions:
- Make your minimum monthly payments on time, even if you’ve missed payments in the past. It is never too late to rebound your credit score.
- If you can afford more than the minimum monthly payment, do so. Put any extra money on your highest rate debt first.
- Stick to your debt reduction plan above. Aim to use less than 35% of your available credit on all credit cards. This will positively impact your score, which is key when it comes time for a mortgage approval.
- Don’t apply for more credit. Focus on responsible payment of existing credit.
Problem Area: No Savings
- Start paying yourself first. Set up automatic transfers from your chequing account to your savings account or RRSP to coincide with regular deposits like your paycheque.
- Be aggressive about saving by forgoing temptations like online shopping and mall visits.
Problem Area: Not sure how to get started
Get advice that’s tailored to you. Talking to a financial planner is a great way to get your financial house in order. When it comes time to plan for a mortgage approval, talk to a member of our team to get pre-approved so you know exactly how much home you can afford…and to lock in a rate for 120 days.
