The article below is up to date based on the latest tax laws. It is accurate for your 2017 taxes, which you will file by the April 2018 deadline. Learn more about tax reform here.
The new year has just started and many people are looking ahead at what goals they want to knock out this year and beyond. One big goal many people have in mind for 2018 is purchasing a new house.
Buying a home is most likely the most money you’ll spend on something, not only with the initial purchase, but the related expenses through the years as well. You can set yourself up for success by getting your finances in a good spot before you go house hunting.
So how can you snag your dream home faster (without living beyond your means)? Here are four changes you can implement, starting today.
1. Become a Local Expert
When purchasing our first home, even before we formally began looking for our home, we started digging into the area. We looked at various neighborhoods, poured over data to come up with a list must-haves, and the areas that fit the bill. Go ahead and set aside some time each week to get to know your city or town beyond the areas you’re most familiar with. This knowledge will also give you an advantage when you’re hunting for your agent. They know the market and can give you a leg up on your house hunt.
2. Build Up Your Down Payment
Getting a large down payment can be an extremely smart move for several reasons. If you have a big enough payment (20% or more) you can forgo buying private mortgage insurance. A larger down payment also means your monthly mortgage will be lower, giving your monthly budget some breathing room. Of course, that kind of money doesn’t come easily, especially in states with higher home prices, so start now and grow your savings.
*Tax Pro Tip: If you live in a state with high housing cost and are considering purchasing a home this year, paying a bigger down payment can help your loan fall under the $750,000 loan threshold under the new tax reform law so that you can deduct all of your mortgage interest at tax time.
3. Increase Your Credit Score
With most lenders, your credit score will determine how good of a rate you’ll be offered for your mortgage. Raise your credit score by taking care of the essentials, such as:
- Make sure your credit report is accurate: Inaccuracy can hurt how your credit score is calculated.
- Pay all of your bills on time: Set up automated bill payments so you never miss a payment and avoid late fees.
- Pay down your high-interest debts: Lenders look at how much credit you’re utilizing overall so pay off as many debts as you can.
Beyond credit score, your income and debt-to-income ratio are also important factors to your financial health. The new Turbo app is a free app that brings together all three key numbers that matter most to your financial health, so you know where you truly stand financially. You can find Turbo at MyTurbo.com and in the Apple App Store (coming soon for Android in Google Play). And if you are a TurboTax customer, when you finish your taxes this year you can choose to effortlessly transfer your tax return information into Turbo, bringing together your tax & credit report data to give you a more complete picture of your income, debt, credit score, and more – in one place.
4. Optimize Your Bank Accounts
You work hard for your money so make sure who you bank with is too. If you’re with a bank that is nickel and diming you for every service or offers small returns on your savings, consider switching now. We got a mortgage with our credit union that was very competitive and offered personalized service. It took some effort, but we’re extremely happy with our home. We’re in a neighborhood we enjoy, have affordable payments, and feel like it’s the best place for us.
I’d love to get your take on buying a house. Have you bought one already? What did you do to make sure it was the best move for you? If you’re thinking of buying a house, what steps are you taking now? Do you know your credit score and your debt-to-income ratio?
When you purchase your house and are ready to file your taxes, TurboTax has you covered and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.