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First Step in the Home
Buying Process: Get Your Finances in Order -
To-Do List |
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1. Develop a household budget.
Instead of creating a budget of what you’d like
to spend, use receipts to create a budget that
reflects your actual spending habits over the
last several months. This approach will factor
in unexpected expenses, such as car repairs, as
well as predictable costs such as rent, utility
bills, and groceries.
2. Reduce your debt. Lenders
generally look for a total debt load of no more
than 36 percent of income. This figure includes
your mortgage, which typically ranges between 25
and 28 percent of your net household income. So
you need to get monthly payments on the rest of
your installment debt — car loans, student
loans, and revolving balances on credit cards —
down to between 8 and 10 percent of your net
monthly income.
3. Look for ways to save. You
probably know how much you spend on rent and
utilities, but little expenses add up, too. Try
writing down everything you spend for
one month. You’ll probably spot some great ways
to save, whether it’s cutting out that morning
trip to Starbucks or eating dinner at home more
often.
4. Increase your income. Now’s
the time to ask for a raise! If that’s not an
option, you may want to consider taking on a
second job to get your income at a level high
enough to qualify for the home you want.
5. Save for a down payment.
Designate a certain amount of money each month
to put away in your savings account. Although
it’s possible to get a mortgage with only 5
percent down, or even less, you can usually get
a better rate if you put down a larger
percentage of the total purchase. Aim for a 20
percent down payment.
6. Keep your job. While you
don’t need to be in the same job forever to
qualify for a home loan, having a job for less
than two years may mean you have to pay a higher
interest rate.
7. Establish a good credit history.
Get a credit card and make payments by the due
date. Do the same for all your other bills, too.
Pay off the entire balance promptly. |
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