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    How to Prepare to Finance a Home

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    Develop a budget.website-budget-factors

    Instead of telling yourself what you’d like to spend, use receipts to create a budget that reflects your actual habits over the last several months. This approach will better factor in unexpected expenses alongside more predictable costs such as utility bills and groceries. You’ll probably spot some ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often. Some tricks to help you solidify your budget are as follows:

    *Follow the money: Track your spending

    *Make savings contributions automatically

    *Define spending and priorities

    *Pay with cash

    *Live within your means

    Reduce debt.om_december_a01_fig01

    Lenders generally look for a 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.

     

    Increase your income.maxresdefault

    Now’s the time to ask for a raise! If that’s 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.

     

     

    Save for a down payment.24028598942a4c16cccab3cc2d75e85ae1380de0

    Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with 5 percent down or 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.

     

    Keep your job.ilovemyjob

    While you don’t 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.

     

     

     

    Establish a good credit history.good-credit

    Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off entire balances as promptly as possible. Many factors can affect your credit score, including whether you’ve paid on time or late, been foreclosed upon or filed for bankruptcy. If a court has ordered you to repay a loan or your debt has been deemed noncollectable-these, too, affect your score. All of this information stays on your credit history. Lenders look at your credit history to assess your ability to pay back their money. If you are having money problems, you represent greater risk to a lender. The basic principle with credit is this: use credit wisely and spend within your means.

     

    Start saving.piggybank-large

    Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs, which can average between 2 and 7 percent of the home price. A few tricks to start saving some money are as follows:

    *Re-shop auto, home and life insurance to see if you can bring down your payments.

    *Re-shop auto, home and life insurance to see if you can bring down your payments.

    *Focus on buying mostly sale items at grocery store or generic brands to reduce your cost.

    *Pack your lunch—not once a week, but regularly.

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    Obtain a copy of your credit report.

    Make sure it is accurate and correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.

     

    Decide what kind of mortgage you can afford.toy-house-on-fanned-money-300x168

    Generally, you want to look for homes valued between two and three times your gross income, but a financing professional can help determine the size of loan for which you’ll qualify. Find out what kind of mortgage (30-year or 15-year? Fixed or adjustable rate?) is best for you. Also, gather the documentation a lender will need to pre-approve you for a loan, such as W-2s, pay stub copies, account numbers, and copies of two to four months of bank or credit union statements. Don’t forget property taxes, insurance, maintenance, utilities, and association fees, if applicable.

    Seek down payment help.South-Carolina-Down-Payment-Assistance

    Check with your state and local government to find out whether you qualify for special mortgage or down payment assistance programs. If you have an IRA account, you can use the money you’ve saved to buy your first home without paying a penalty for early withdrawal.

     

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