GETTING YOUR FINANCES IN ORDER
Once you have decided to purchase a home, you should do a financial inventory to determine your ability to secure a mortgage and to identify problem areas, if they exist. By assuring that your finances are in order, you enhance your ability to secure a mortgage at a favorable rate.
The following steps will assist you in getting your finances in order.
1. Create a budget and live by it. Review your receipts and bills from the past six months to estimate your monthly expenses accurately. Remember to build in money for unexpected expenses like doctor visits, car repairs, etc. Then commit to living by your budget as closely as possible.
2. Reduce your debt. Generally speaking, lenders look for a total debt load no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 and 28 percent of income, you need to get the rest of your installment debt - car loans, student loans, credit cards - down to between 8 and 10 percent of your total income.
3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writting down everything you spend for one month. You will probably see some great ways to save.
4. Increase your income. It may be necessary to take on a second, part-time job to pay down debt or get your income to a high enough level to qualify for the home you want.
5. Save for a down payment. Although it is possible to get a mortgage with only 5 percent down - or even less in some cases - you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent down payment.
6. Creat a house fund. Do not just plan to save whatever is left toward a down payment. Instead, decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.
7. Keep your job. While you do not 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.
8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.
Being proactive and analyzing your financial situation before applying for a morgage is an important step in achieving your goal of home ownership.
** Taken from Real Estate 4-1-1. Mississippi Association of Realtors. |
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