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At IAA Credit Union we strive to build personal relationships that promote smart financial decisions. We hope the resources below help our members expand their financial knowledge and help them utilize our products and services to their full potential.

Plus, check out even more resources from our Partner GreenPath Financial Wellness.

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Did you know IAACU participates in a DownPayment Assistance Program?

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4 Steps to Prepare for a Big Purchase

Sep 19, 2023

Spilt screen photo showing a car and house with for sale sign

A financial journey is filled with challenges such as budgeting, saving, and managing debt, often accompanied by unexpected income fluctuations. Whether it's the milestone of buying a home or a car, these four crucial financial steps can guide you toward your destination.

1. Look at your financial picture

Start by considering what you can afford given your current income, expenses, and other debt obligations. Get a handle on how much money comes into your household each month, and where the money goes. Consider your net income- what is available to you after taxes.

For homebuyers: When purchasing a home, a common rule of thumb is to spend about 30% of your monthly gross income on housing. That includes costs like mortgage principal and interest, property taxes, insurance, and maintenance.

For car payments: A general rule of thumb is to keep total monthly car costs at about 20% of monthly take-home pay.

2. Verify your credit score and report

Utilizing our My Credit Score tool, you can assess your current credit score and utilize the score simulator to experiment with scenarios, gauging how paying off debts or taking on new ones impacts your score. Obtain your credit report through AnnualCreditReport.com and adhere to the provided instructions to access your existing credit score, as it significantly impacts the financing costs for your purchase. A lower credit score is correlated with a higher likelihood of encountering elevated interest rates and increased overall expenses.

Tip: Be sure to check your report for accuracy. Resolving errors or incorrect information often helps increase your credit score, giving you more attractive financing options. If the report is inaccurate, file a dispute with the credit bureau.

Make sure to check all three bureaus, as sometimes one has information that another does not. Before making a big purchase, it’s important to fully vet (and make sure you understand) your financing options.

3. Research your financing options

For a home purchase, that means giving yourself enough time to explore mortgage options including types of mortgages, terms, fees, interest rates, and other information. Consider getting a preapproval or prequalification letter from a lender, especially in a competitive market with low housing inventory.

IAACU partners with the Federal Home Loan Bank of Chicago to offer Down Payment Assistance that can allow eligible borrowers to get up to $10,000 in a grant to use through their home purchase.

Tip: When conducting your research, remember to use trusted, unbiased information sources, rather than depending upon advice from someone who might benefit from your choice.

4. Make the deposit

Finally, get ready to make an earnest money deposit for your purchase. In the case of a home purchase, it indicates you are a serious buyer. Generally, earnest money deposits range from 1% to 2% of a home’s purchase price and are only refundable under specific circumstances.

For a new car purchase, deposits typically total about $500 once you agree to the vehicle price in writing.

The Journey Ahead

Remember, thorough research and careful consideration of your financing choices are crucial before making significant purchases. These steps will help you navigate the financial journey and make informed decisions that align with your broader financial goals.

From the experts at GreenPath Financial Wellness