8 Steps to Getting Your Finances in Order
- 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.
- 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.
- Get a handle on expenses. You probably
know how much you spend on rent and utilities, but little expenses
add up. Try writing down everything you spend for one month.
You’ll probably see some great ways to save.
- 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.
- Save for a downpayment. Although it’s
possible to get a mortgage with only 5 percent down—or even less in
some cases—you can usually get a better rate and a lower overall
cost if you put down more. Shoot for saving a 20 percent downpayment.
- Create a house fund. Don’t just plan on
saving whatever’s left toward a downpayment. Instead decide on a
certain amount a month you want to save, then put it away as you pay
your monthly bills.
- Keep your job. While 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.
- Establish a good credit history. Get a
credit card and make payments by the due date. Do the same for all
your other bills. Pay off the entire balance promptly.
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