In an effort to make loans more secure, the lending industry tightened its rules and requirements for obtaining money. Understanding the changing landscape and taking the necessary steps today puts you in the best purchasing position tomorrow. Here’s a simple list to get started:
Improve your credit score
Because FICO scores determine the risk of a borrower, lenders are offering incentives (lower rates) those with strong scores and penalizing those with weak ones. In some cases, lenders refuse money to borrows under a certain score.
- Get your credit report so you know where you stand
- Take steps to improve it
Eliminate debt
Debt is a major factor lenders consider. Computing your debt-to-income ratio requires both the potential mortgage and all other outstanding debt, such as credit cards and auto loan. Minimize or eliminate these and improve your loans options and receive more incentives.
- Create a debt destroyer to reduce outstanding debt (read Stacy Johnson’s Life or Debt for a how-to)
- Know your Latte factor and control spending (read David Bach’s Finish First series)
Give it a trial run
Start saving today as if you are carrying a mortgage already. Making monthly payments for 6 months to a year shows whether you are consistent enough to pay a monthly mortgage and puts more money towards your down payment.
- Set aside $2,000 per month into a high-interest savings account for 6-12 months ($1,987 doesn’t count – it must be at least $2,000).
Down payment assistance
There are many sources private and public equity to assist you with the down payment. Some possible sources:
- Family or parents
- Equity sharing, such as Home Equity Share’s program
- California Housing Finance Agency offers more favorable interest rates for smaller purchases as well as down payment assistance. See Santa Clara County and San Mateo County for their specific programs.
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