GET YOUR FINANCES IN ORDER:
1. Develop a household budget.
Instead of creating a budget of what you would like to spend, use
receipts to create a budget that reflects your actual spending
habits over the last several months. This approach will factor in
unexpected expenses, such as car repairs, as well as predictable
costs such as rent, utility bills, and groceries.
2. Reduce your
debt. Lenders generally look for a total debt load
of no more than 36 percent of income. This figure includes your
mortgage, which typically ranges between 25 and 28 percent of your
net household income. So you need to get monthly payments on the
rest of your installment debt — car loans, student loans, and
revolving balances on credit cards — down to between 8 and 10
percent of your net monthly income.
3. Look for
ways to save. You probably know how much you spend
on rent and utilities, but little expenses add up, too. Try writing
down everything
you spend for one month. You’ll probably spot some great ways to
save, whether it’s cutting out that morning trip to Starbucks or
eating dinner at home more often.
4. Increase
your income. Now is the time to ask for a raise! If
that is not an option, you may want to consider taking on a second
job to get your income at a level high enough to qualify for the
home you want.
5. Save for a
down payment. Designate a certain amount of money
each month to put away in your savings account. Although it is
possible to get a mortgage with only 5 percent down, or even less,
you can usually get a better rate if you put down a larger
percentage of the total purchase. Aim for a 20 percent down payment.
6. Keep your
job. While you do not need to be in the same job
forever to qualify for a home loan, having a job for less than two
years may mean you have to pay a higher interest rate.
7. Establish a
good credit history. Get a credit card and make
payments by the due date. Do the same for all your other bills, too.
Pay off the entire balance promptly.
