As a first time homebuyer, there are several ways that you can adequately prepare your finances in order to qualify for your new home, and have the funds available and budget necessary to afford your new home without bringing on undue stress.
1. Develop a family budget Instead of budgeting what you'd like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.
2. Reduce your debt Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt - car loans, student loans, revolving balances on credit cards - down to between 8 percent 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 do add up. Try writing down
everything you spend for one month. (Make sure to include those daily lattes!) You'll see some great ways to save.
4. Increase your income It may be necessary to take on a second, part-time job to get your income at a high enough level to qualify for the home you want.
5. Save for a down paymentAlthough it's possible to get a mortgage with only 5 percent down - or even less in some cases - you can actually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent down payment.
6. Create a house fund
Don't just plan on saving 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 jobWhile you don't need to be in the same job forever to qualify, 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 of your other bills. Pay off the entire balance promptly.
See our blog - 8 ways to improve your credit history
Related Posts:
Common Mistakes Smart People Make When Buying Their First HomeFirst Time Home Buyers - Consider Five Reasons Why You Should BuyFirst Time Home Buyers - Find Out How Much You Can AffordFirst Time Home Buyers- Getting Pre-QualifiedBuying Your First Home? Find A Great Buyers Agent!First Time Home Buyers- You've Hired A Buyers Agent- What's Next?First Time Home Buyers - Get A Home Inspection
The following article is reprinted from Realtor Magazine online by permission of the National Association of Realtors.
Posts
