Financing a Home The Right Way

Determine a Price Range

Decide what kind of mortgage you can afford, and stay as realistic as possible. Yes, owning a home is an investment—but it’s only a smart investment if you spend what you can afford now.

Manage Debt

Mortgage lenders typically look for those with debt less than 35 percent of their annual income. In order to qualify for a mortgage, you’ll need to get monthly payments on student loans, credit cards, car loans, and other debt under 10 percent of your monthly income.

Budget Wisely

Besides accounting for projected expenses such as food, utility bills, and transportation, it’s important to factor in unanticipated expenses as well.

Save in Advance

You’ll not only need to qualify for a mortgage loan, you’ll also need enough money to cover your down payment—which should be, ideally, 20 percent of the purchase price—as well as closing costs. Determine a set amount of your monthly income to save in advance so you can reach this goal and make a better offer.

Get Your Credit in Order

It’s important to routinely monitor your credit, especially when preparing to finance a home. Request a copy of your credit report—there are a number of services that provide you with a credit report for free. Evaluate any errors, have them corrected, and take the necessary steps to improve your credit score.

If your first home purchase is with a spouse or partner, make sure you both have built up your credit beforehand. If one of you has not-so-great credit, you may not qualify for the mortgage together, and may need to buy the home with just one borrower.

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