Thinking of taking out a mortgage can be a nerve-wracking experience! For many new homeowners, the number of zeroes on the mortgage can get your blood pressure rising. There’s no need to panic if you start on the right foot, and we are here to help!

Current Expenses

What bills are you currently paying? This doesn’t sound like a fun place to start, but knowing what you are spending each month puts you in control. This includes keeping track of bills and payments taken out of your income on a regular basis, such as rent or shopping expenses.

Here’s the point: You need to know how much you are spending to determine if you can afford a loan. Being approved for a loan doesn’t necessarily mean you can afford it!

The 5 Categories of Expenses

It can be helpful to know what your regular expenditures fall under, so you can better plan your finances to save for a home. Here are the five broad categories of regular expenditures:

• Unseen and required:  mandatory payments such as rent, taxes, and health insurance deducted from your income
• Required: utility bills, alimony, child support
• Negotiable: cable, internet, memberships, credit cards, cell phone bills, car payments
• Regular required: food, school tuition
• Additional: the extras in life – entertainment, eating out, snacks

Add Them Up

After categorizing your expenses, add each category up. Find how much you spend each week on average. Pull together pay stubs, receipts, bills and any electronic statements so you can track them.

Keeping track of additional expenses can be the trickiest aspect. It may be helpful to start a spending journal. There are apps readily available to help track where your money goes. You can even create categories of expenditures to suit your lifestyle habits (food/drinks, entertainment, goods, etc.).

Cultivate a habit of recording expenses in the app whenever you whip out your cash or credit card to pay for something. Do this for at least a two to three month period to gain an accurate picture of what and how much you spend.

Crunch the Numbers

This part is simple but can be sobering if you haven’t kept track of your expenses until this point! Use this process to compare your monthly expenses with your income. How much are you earning versus spending? Subtract your total monthly expenses from your gross monthly income to determine your cash flow.

Your cash flow is a source of information for lenders to decide if a house payment is manageable for you. If you are left with a significant amount after deducting expenses, you’re set! If you’re in the red, see where you can make adjustments.

You’re Not Alone!

If you’re in the red, it can be a daunting process to figure out where to start. Luckily, we are here to help! As a credit repair company, we have lots of experience in helping people improve finances to achieve goals. Contact us today, and we can get the process started!