Seven Steps To Getting Your Finances In Order

Preparing to buy a home is a big decision and one you can be proud of. It’s important to note that in a mortgage, the borrower promises to repay the loan as specified. The lender is given the right to seize the property if you default on the loan.

We’d like to help you make it easier by providing these seven steps necessary to getting your finances in order. In doing so, you’ll be in a better position to get the best interest rates possible. Keep in mind, the lending process typically takes between three to six months so getting your finances in order early is a good idea.

Start a budget

By budgeting your money, you will know how much you can afford to spend on a mortgage payment each month. It will also help you track your expenses to find out if you need to make cuts anywhere. A budget is a useful tool to help you keep yours and your family’s expenses on track.

Cut your debt

Lenders like to see a debt load of less than 36% of your income (including your mortgage payment). It is advisable to get your debt down to less than 10% of your income. This amount includes car loans, credit card payments, etc.

Know all your expenses

You probably have a good idea how much you spend every month on such things as utilities, credit cards, car payments, etc. but do you know how much you spend on other expenses such as food, gas, entertainment and clothing? It’s a good idea to track these expenses for at least six months to find out how much you actually spend. Then adjust your spending accordingly.

Increase your income

You might want to consider having you and/or your spouse take on a second or part-time job to get your income to a level high enough to qualify for the home you want.

Down payment options

Typically, you’ll need 10 to 20% of the home’s purchase price for a down payment. However, you may only be required to put 5% down. Even better, if you’re a military veteran, you can get a VA loan with no down payment! There are also down payment assistance programs available for some buyers. Consult your Realtor or Lender to find out if you qualify for one of these programs.

It is advisable to put as much down on your home as possible. This decreases your mortgage payments and looks more favorable to lenders. They will be more inclined to give you the best rates available when you have a significant financial interest in the home.

Have a steady job with a predictable income

Having the same job for at least two years makes a favorable impression on lenders leading them to offer you the best rates. You will also have to supply tax returns for three years to show your income history.

Establish good credit by paying your bills on time

This is one of the most important factors in getting a home loan and a good rate. The better your credit score, the better financing you will qualify for. Pay off as many bills as possible to increase your credit score and reduce your debt-to-income ratio – both are two important considerations to lenders.

If you have no credit, get some. Take out a loan or get a credit card and use it. Then pay off the loan or the credit card balance in full to establish a credit history which is necessary to obtain a home loan. You also won’t be paying any interest if you pay off the balance in full each month. It’s a win-win situation.

If you have less than perfect credit, work on repairing the damage. The best way to do this is to pay your bills on time. Consider talking to a credit counselor. The Fannie Mae Foundation – a private company chartered by Congress – can help you find credit counselors and other mortgage information. Call 1-800-699-HOME for assistance.

Next, get a copy of your credit report. Review it for any errors and notify the agencies of any inaccuracies you find. With the Fair and Accurate Credit Transactions Act (FACT), you are entitled to one annual credit report from one of the three major credit reporting agencies. Go to www.annualcreditreport.com/cra/index?accesstime=1150748727926 for information on how to obtain your report from all three agencies. For your convenience, we’ve listed the contact information for all three agencies below including their web addresses and telephone numbers. Either go online or call them to request your copy.

Equifax
http://www.equifax.com/
(800)-685-1111

Experian
www.experian.com
(888)-397-3742

TransUnion
www.transunion.com
(800)-916-8800

Getting your finances and credit in order is the first step in buying a home. By following our advice, you should be well on your way to homeownership. Good luck and give us a call when you’re ready to start looking for your new home.