8 Steps to Getting Your Finances
in Order
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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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