Home Buying Process
Step 1:
Before You Begin
Before you begin the
home buying process, there are several steps you need to
take.
One:
Figure Out What You Can Afford Determine how much you
can afford - and what your monthly payments will be.
The traditional
debt-to-income ratios are 28 and 36 percent. This means that
your total monthly housing payment - including mortgage
principal and interest, insurance, real estate taxes and any
condo monthly assessments - should not exceed 28 percent of
your before-tax monthly income. Then, when adding in all other
consumer debt payments, the total figure typically shouldn't
exceed 36 percent of your monthly income. However, each
person's financial situation varies, so let's discuss what's
right for you.
Two: Reduce
Your Debt
The fewer credit
cards you carry - and the lower the balances - the better.
That's especially true if you have other debts such as a car
or student loan. However, don't pay down or pay off balances
with cash intended for a down payment. Even if you choose a
low-down payment option, you're going to need cash available
to pay the down payment and closing costs
The easiest way to
improve your debt picture is to close all dormant credit card
accounts. Contact card issuers and ask for instructions on
closing the accounts (for instance, you may be asked to cut up
your card and return it by mail). Instruct the card issuer in
writing to enter into your credit report, "Closed at request
of cardholder." That way, there won't be any reason to suspect
that a credit problem caused the account to be closed.
Three:
Solidify Your Savings
If you're like most
people planning on buying a home, you need to reduce your
spending to save up for a down payment and closing costs. It's
never too early to review your spending, cut out excess
spending and set a budget.
Four: Review
Your Credit
It's important to
understand if there are problems or errors that could affect
your ability to qualify for a loan. To do this, you'll want to
get a copy of your credit report. Because these reports
contain your credit history, it's important that you're aware
of what they contain - and whether the information is
accurate. You might have excellent credit, but odds are 1-in-4
that you'll find an error in your report. Look for mistakes,
such as accounts that are not yours. When you find errors,
contact the creditors by phone or mail to correct the error.
Then get another copy of the report 30 to 60 days later to
make sure the corrections have been
made. |
