Get your finances in order
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At this point you've learned what it takes to buy a house. Now it's time to get prepared to do so.
Here's your financial checklist:
- Pay down your debt. The bank wants your total
debt to be no more than about 38% of your income. If your income is
$3000/mo. then the bank figures your total debt can be $1140/mo. But if
you already have $1000/mo. in debt, then you have only $140/mo. left
for mortgage payments. Pay down your debt as much as possible to
increase your borrowing power. Pay down the highest-interest debt first
(credit cards) before lower interest debt (car loans, student loans).
Once you pay off your credit cards get in the habit of paying them off
every month and never carry a balance. Few things can kill dreams of
home ownership better than credit card debt. Pay down that debt! If you
have a hard time paying down your debt then use the technique advocated
by Charles Givens: Pay Yourself First. Every time you get a paycheck,
take a portion of that paycheck and apply it towards your goal of
paying down your debt first. If you wait to take care of
everything else first you may never have anything left over to
pay down your debt with.
There's more about how debt holds you back in our sections on the Debt Ratio and How
Much Loan Can You Get?.
- Get the down payment together. If you don't
already have a down payment saved,
start saving now. If you have a hard time saving then use the Pay
Yourself First technique mentioned above: Every time you get a
paycheck, put a portion in your savings account first. Pay
yourself first so that money is definitely saved. It may help to have a
separate account for your down payment, so it's easy to see its size
completely separate from any other savings you may have. Remember,
having a sizable down payment is the #1 factor in being able to qualify
for a loan -- especially being able to qualify for a bigger
loan.
- Clean up your credit report. Good credit not
only helps you qualify for a loan in the first place, it helps you get
a better deal when you do get a loan. This is a big topic so we
cover it on its own page, next....
If you liked this site then you might like some of my other sites:
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