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 down payment.
Create a house fund. Don’t just plan on saving whatever’s left toward a down payment. 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.
With mortgage markets still tight, it’s more important than ever to have a good credit score. Having a good score not only increases the odds of being approved for a mortgage, but it can also affect your rate, as the best interest rates are generally reserved for applicants with top credit scores.
Many consumers aren’t knowledgeable about their credit scores—or what impacts them. More importantly, they may not be aware of the many things they can do to improve their scores. Here are some tips that could help boost your score.
Get a copy of your credit report. Review it carefully to ensure that it’s correct. If you find an error, contact the creditor to have it corrected. You can request a free copy of your report at http://www.annualcreditreport.com. Under federal law, you are entitled to a free report from each of the three national credit reporting agencies every 12 months.
Pay your bills on time. This is probably one of the most important—and simple—things you can do to improve your credit score. Just pay your bills by their due date. Consider setting up automatic payments from your bank account to help you pay on time.
Pay down your credit cards. Paying off your credit cards or loans will help increase your score, but so will paying down your balances. Try to keep your balances below 30 percent of your credit limit.
Avoid closing unused credit cards. The older your credit history, the better. So keep your older cards, and use them periodically to keep the account active. Just be sure to pay your bill on time.
Check your credit limits. If your lender has reported a lower credit limit than you actually have, your score will be depressed. Once the information is corrected, your score should improve.
For more tips on improving your credit, or for a referral to a mortgage lender in your area, call our CENTURY 21 Office today.