The dreaded B-Word
I hate to say it because I know how much I loath doing it myself, but if you want to own a home, you’re going to need to budget. There I said it, the dreaded B-word. Owning a home is a long term commitment. Just like with any other long term commitment the consequences of our decisions can either provide incredible freedom and blessing or bondage and stress.
A typical rule of thumb used for a total housing expense is about 30-35% of your income. Remember though that rules of thumb are only general guidelines. How much you can afford will depend on many factors.
I heard this great advice recently. Once you determine what your monthly housing expense will be, start budgeting for it 3-6 before you buy a home. This will let you test out how realistic your budget is and help you feel more confident about how much you can spend on a home. If you take that extra money you set aside each month and save it, you’ll probably have a great chunk of change to help with the anticipated closing costs or moving expenses when you buy.
Understand and Review your FICO score
When you apply for a credit card, a car loan, a home mortgage, or any other type of financing, lenders want to know how much of a risk you are. The most common tool they use is your FICO score aka your credit score.
There are actually three different agencies that evaluate your credit score: Equifax, TransUnion, and Experian. You are entitled by law the right to obtain your credit score once a year from each agency. To learn more review the following guidelines on the Federal Trade Commission website.
You can download this free pdf from FICO that is one of the best free and comprehensive resources I’ve found when it comes to understanding your credit score.