Ted
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A down payment, good credit score, and low debt-to-income ratio are important requirements to purchase a home. You’ll find it difficult to get a mortgage with bad credit and an unacceptable debt-to-income ratio. Read further for tips from MRHerrera on how to better manage your debt and increase your chances of getting approved for a mortgage.
Follow a Budget That Works
Having a budget and religiously sticking to it ensures you have enough money every month to cover expenses, savings, and debt. When creating a budget, allow up to 50% of your income for basic utilities, groceries, insurance, transportation, and housing. You can leave 30% for your “wants,” while the remaining 20% will be for your savings.
Build Good Credit
You need good credit to get pre-approved for a mortgage and secure better interest rates. Start by checking your credit reports to find any information that might affect your credit score, and fix any errors if there are any. Payment history is 35% of your credit score, so ensure you pay off any delinquent accounts.
As much as possible, avoid applying for new loans because inquiries can affect your credit score. Pay off credit card debts and ensure you’re only using 70% of your credit limit. Most importantly, aim for an acceptable debt-to-income ratio.
Protect Your Property With a Home Warranty
Purchasing a home is among the biggest investments you will make, so it makes sense to protect it with a home warranty. Your homeowners insurance will cover the structure, but typically won’t have coverage for the systems or appliances. When researching companies that offer the right policy for your needs, take a look at reputable and experienced providers that offer exceptional customer service and even discounts.
Select a Beneficial Structure if You’re a Business Owner
For business owners, forming a limited liability company (LLC) for your business can help you purchase a home as you can gain tax advantages which can help you save. Another benefit of having an LLC is limited financial liability in case of litigation. However, each state has different regulations around creating an LLC, so check on the rules about forming an LLC in your state before moving ahead.
Only Use One Credit Card
Credit cards can get you stuck in a cycle of debt. If you want to reduce debt, consider getting rid of them. You can use just one card for emergency purposes. Don’t use your other credit cards (but don’t close the accounts as it can affect your credit score).
Create a Debt Reduction Plan
Reducing debt increases your chances of getting approved for a mortgage. Northwestern Mutual advises trying the snowball method where you pay off the smallest debt balance first and make minimum payments on the larger debt. Another option is to use the avalanche method, where you pay off the balance with the highest interest rate first.
The debt reduction method you choose will depend on your financial goals and budget. Set small goals and make sure to track your progress by creating a spreadsheet of all your debts and balances or using a free credit monitoring service.
Look for Down Payment Assistance
If you’re not able to afford a down payment for a home, consider finding financial assistance in the form of loans, grants, and tax credits. You may be eligible for assistance depending on your income, location, career, and type of home you’re buying. If you have more time, Careertuners suggests getting a side gig to help you generate more money for a down payment.
Learn How to Manage Your Finances
Buying a home in 6-12 months is possible if you commit to making good financial decisions such as sticking to a budget, reducing debt, investing in a home warranty, finding down payment assistance, and registering as an LLC if you’re a business owner. Use these tips to guide you.
MRHerrera offers you encouragement and tools to help you achieve financial freedom. Contact us today to learn more!
* debt-to-income ratio are important requirements – https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/
* tips from MRHerrera – https://mrherrera.com/
* affect your credit score – https://www.equifax.com/personal/education/credit/score/what-is-a-good-credit-score/
* take a look – https://www.ahs.com/
* rules about forming an LLC – https://www.upcounsel.com/rules-for-llc
* trying the snowball method – https://www.northwesternmutual.com/life-and-money/debt-snowball-vs-debt-avalanche-pros-and-cons-of-each-repayment-strategy/
* getting a side gig – https://careertuners.com/blog/top-paying-side-hustles/
* MRHerrera – https://mrherrera.com/
* Contact us today to learn more! – https://mrherrera.com/contact/
