How to Get Your Finances In Order Before You Buy a House

You have made that all-important decision to buy a house. Your dream is finally close to becoming a reality. Once the decision is made, the real work begins. It is imperative to get your finances in order.

Pay Down Your Debt

When you begin the process of looking for a lender, you will find that most want your total debt to be no more than 38% to 40% of your gross income.

For example, your income is $ 3000 a month, and then the bank figures your total debt can be $ 1240 a month. If you already have $ 1000 in debt, you will only have $ 240 left over for mortgage payments. By paying off credit cards and car loans, you will greatly reduce this number an increase your borrowing power.

Begin with the highest interest items first, normally credit cards. Then move onto car loans and lastly, student loans.

It is always a good idea to get into the habit of paying off your credit cards completely each month and never carry a balance. Few things can kill the dream of homeowners quicker than credit card debt.

If you are finding this difficult to do, then follow the rule of pay yourself first. That means, take 20% of your pay check to pay for something you really want or to put into savings. In this case, it is making a credit card payment.

If you take care of everything else first, you may never have enough to pay down your credit card debt.

Get the Down Payment Together

If you do not already have a savings account, get one now. If you find it hard to save money, use the pay-yourself-first technique. Every time you get a paycheck, put a pre-established percentage into your savings account and then make sure you leave it alone while your down payment accumulates.

Even have a separate savings account for your down payment will allow you to see what you are accumulating towards your dream of homeownership. You will be surprised at how fast the balance grows if you pay yourself from every pay check.

A large down payment is the key to loan qualification, especially if you want to qualify for a larger home loan.

Clean Up Your Credit Report

Good credit not only helps you qualify for a loan to begin with, you get a better deal when you do get the loan.

Lenders will look at your credit report.Bad credit does not mean you will not get the loan, it just means you will have a much higher interest rate and you will be required to pay a much larger down payment than someone with a good credit score.

Credit Report vs. Credit Score

Did you know that your credit report and your credit score are two different things? Your credit report is a list of thing like your credit card and bank accounts, outstanding loans and you payment history. Your credit score is a rating of how good your credit is, based on your report. In other words, your credit report is a bunch of pages and your credit score is a number from 300 to 850.

Taking a few months or even a couple of years to get your finances in order will help you get your dream home. The folks at Nancy Chandler Associates can give you some ideas about preparing for your home purchase. The agents at Nancy Chandler Associates are among the best in the Hampton Roads and Tidewater area of ​​Virginia. Whether you are buying a home or selling, the agents in this firm put you first. These professionals listen when you speak and will not steer you wrong. Contact Nancy Chandler Associates at (757) 436-5500. Nancy Chandler serves Norfolk, Chesapeake, Virginia Beach, Suffolk and Portsmouth in the Hampton Roads and Tidewater areas of Virginia.

Source by Karen Vertigan Pope

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