- Develop a family budget. If you have never done this before, use your receipts from the last six months to develop it so you can better determine what you are spending. In addition to predicatable costs like car payments and rent, this method will allow you to factor in unexpected expenses such as illnesses and car repairs.
- Eliminate, or at least reduce, debt. As a general rule, lenders look for a total debt load of less than 36% of your take home income. Since this percentage includes your mortgage, which should be less than 25%-28% of your take home, you need to lower the rest of your debt (preferably eliminate your debt) including loans on your car, student loans, and credit-card balances to less than about 10% of your income.
- Reign in expenses. Rent and utilities are easy to budget for. However, little expenses can also add up. Keep a spending journal or use a cash envelope system to track your spending. You may find some great ways to “trim the fat” or get big bargains.
- Increase your income. Taking a second, part-time job may be necessary to qualify. However, paying down your other debt and/or taking a higher paying job may be a better option.
- Save for a larger downpayment. With the many options for zero-down or low-down mortgages, it can be easy to get a loan. However, a larger down payment of 20% or more can earn you a better rate a lower overall cost.
- Create a home fund. Be intentional with your savings. Designate a set amount each month to save towards your home. Treat it like a bill. When you buy a home, apply your additional savings to your monthly principal to shorten the life of your loan.
- Keep your job. While you dont 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.
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