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. (Income being AGI,
line 37 of your U.S. tax return.) 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.
xPay 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 down payment
money 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. Having a down payment is crucial for 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....
Last update: November, 2015.
← Back: Understand
closing costsNext: Check
your credit report →
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