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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....
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