Spring Clean Your Finances: Get Ready to Buy a Home This Season

Spring is in the air, which means it’s time for spring cleaning—but we’re not just talking about tidying up your home. April is Financial Literacy Month, so it could be a sign to take a fresh look at your finances and get everything in order before entering the spring or summer home buying market.

If you’re planning to buy a home soon, “spring cleaning” your finances now can help you boost your credit score, reduce debt, and make yourself a stronger mortgage applicant when you go to apply later this year. Here are a few ways to refresh your financial habits and get one step closer to homeownership.

“Declutter” Your Debt

Just like clearing out old junk in your home, it’s time to clear out unnecessary debt. Lenders look at your debt-to-income ratio (DTI) when evaluating your mortgage application.

There are a few things you can do now, to help yourself later. First, focus on paying down high-interest debt like credit card debt. While doing this, avoid taking on new debt, especially large (or even small) purchases on financing plans. Honestly, just avoid afterpay programs like Klarna, AfterPay, and Affirm altogether, forever!

These programs may seem convenient, but they can negatively impact your ability to buy a home. These programs increase your overall debt, affect your debt-to-income ratio, and may even show up on your credit report, potentially lowering your score. Lenders look at your full financial picture when approving a mortgage, and multiple installment plans can signal higher financial risk.

Other types of debt like car loans, student loans, etc. are okay if you are able to handle them and responsibly pay them off. We’re not necessarily looking for no debt at all, just a healthy debt-to-income ratio. If you have questions about your specific situation, ask away! We typically look for your total debt-to-income ratio between the new house payment and your current monthly payment minimums to be somewhere in the 40% or less range.

Dust Off Your Credit Score

Your credit score plays a major role in your ability to qualify for a mortgage and secure a competitive interest rate. Even a little bit of improvement in your score could make a difference when it comes to your overall mortgage payment.

Generally, you’re shooting for a minimum score of about 640. However, don’t get discouraged if your score is lower than 640. There are some things you can do to raise it and establish healthy credit going forward!

We’ve covered this topic before and given tips on how to raise your credit score, in another blog all about credit scores that goes a little more in-depth.

As a refresher, here are some things you can do to raise that score and keep your credit score nice and alive and healthy: once again, pay down any card balances you have, never charge more than 30% of your credit line on credit cards, keep your lines of credit open and don’t close them out, the length of history with your credit holders helps your score.

Also, having no credit score is not the same as having a good credit score. While avoiding debt may reflect responsible financial habits, lenders still require a credit history to evaluate your mortgage eligibility. Instead of avoiding credit altogether, it’s important to build and maintain good credit to ensure you qualify for a home loan when the time comes.

Finally, keep track of your credit report and records so you can spot details to protect yourself if needed.

We know credit scores can be an intimidating topic or hurdle for some people, but keep up these habits and you’ll notice positive changes to your credit score in no time. As always, we’re here to help so if you need ideas or want to talk about credit scores and loan options, feel free to reach out.

Organize Your Budget and Finances

Before starting the homebuying process, take time to get a clear picture of your finances. Understanding your income, debts, and financial goals will make it easier to provide the necessary information when working with a lender. Some people don’t even truly know how much money they make and overlook factors like overtime, bonuses, or recent raises. Having a solid grasp of your full financial situation now will help ensure a smoother, more efficient loan process later.

Take time to track your expenses and income, identify areas where you could improve, and pull together relevant information that you’ll need to provide to a lender to secure a home loan. If you aren’t sure what types of paperwork and things we usually require, ask ahead! We love prepared buyers!

Prepare for the Spring Homebuying Market

Spring is one of the best times to buy a home in Iowa. More listings hit the market in April and May, giving buyers more options to choose from. By getting your finances in order now, you’ll be in a great position to act fast when the right home comes along.

If you’re not sure where to start or need guidance on improving your financial situation, our team at RMN is here to help. We’re happy to provide insights on your unique financial picture and what steps you can take to get mortgage-ready.