Reduce debt, save for a down payment, and improve your credit to prepare for financing.
Are you ready to trade in your rent payments for shiny new house keys? If you’re considering buying a home with a loan, you’ve got some financial prepping. But don’t worry; with these three essential steps, you’ll be ready to breeze through the financing process like a pro:
1. Reduce debt. Lenders generally look for a debt load of no more than 36% of your income. This figure includes your mortgage, which typically ranges from 25% to 28% of your net household income. So, you’ll need to get monthly payments on the rest of your installment debt—like car loans, student loans, and revolving balances on credit cards—down to between 8% and 10% of your net monthly income.
2. Save for a down payment. Designate a certain amount of monthly money to put into your savings account. Although getting a 5% down or less mortgage is possible, you can usually get a better rate if you put down a more significant percentage of the total purchase. Aim for a 20% down payment. Also, don’t forget to factor in closing costs, which can average between 2% and 7% of the home price.
3. Obtain a copy of your credit report and establish a good credit history. Make sure your credit report is accurate and correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments. 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 as promptly as possible.
I know that buying a home can feel like a complex puzzle, but with these steps in your back pocket, you’ll be well on your way to putting the pieces together. And remember, if you need extra help along the way, don’t hesitate to call me at (901) 685-6000. I’m just one message away from helping you unlock the door to your dream home.
