-By Guest Writer, Candace Sigmon
Are you looking to buy a home in the next 6 to 12 months? If you are, it’s essential to reduce your debt first, so you can improve your credit score and afford the home you desire. Although it takes work, it’s possible when you know how to proceed.
Focus on Reducing Your Debt
Decrease your debt as much as possible before you start searching for a lender. No matter which lender or loan type you choose, your debt-to-income ratio is a deciding factor when it comes to how much you can afford. This proportion is a comparison of your monthly debt divided by your gross monthly income.
As a general rule, a lender wants prospective borrows to have a DTI no higher than 43%. Typically, the lender wants your mortgage to be a maximum of 28% of your debt. To meet these mortgage requirements, set up payment plans to gradually reduce your debt over time.
Check Your Credit Report
As you manage debt, check your credit report. You may do this at no cost when you visit Credit Sesame or Credit Karma. These sites allow you to see your credit score and know for certain if you qualify for a good mortgage rate. You can also see what debt you have. This information can help you prioritize the debts you need to pay off first. Additionally, you can identify any discrepancies, such as misreported data.
Build Credit With a Credit Card
Unfortunately, to establish credit, you must prove you can handle debt. If you currently have no credit history, consider opening a credit card account and using it to pay some of your bills each month. Then, pay off that debt each month. This helps you gradually build credit.
Consider Hiring a Professional
If you have a considerable amount of debt, it may be in your best interest to hire a professional who can assist you in managing your debt. For instance, a professional can consolidate your unsecured loans and credit card bills into one payment, which reduces your interest rates. They can also help you work with your debtors to create realistic payment plans.
Think About Increasing Your Income
If you increase your income, you can pay off debt sooner and possibly qualify for a larger mortgage. One way to do this is to start a business. If you begin a home-based business, you have more flexibility and may be able to earn as much money as you can on a schedule that works for you. Start an e-commerce business or one that serves your local area, and work on it in your spare time while you continue to work at your regular job.
Consider structuring your business as a limited liability company. You benefit when you file your taxes, and you protect your personal assets, including your new home. Check Arkansas laws about LLC formation before proceeding.
Get out of Debt and Into Your Dream Home
It may take work, but if you start getting out of debt now, you can get on the road to buying your dream home.
When you’re ready to find a home, connect with Colley Bailey at Fathom Realty for local expertise and exceptional service. Call (479) 856-9422!
You could say Candace Sigmon was born to DIY. She has always loved to tinker, fix, and build, and she has been working on home projects with her dad pretty much ever since she could hold a hammer. She created AtHomeHelper.com because she thought it might be fun to share some of what she has learned along the way as well as resources that she finds especially useful.
Learn more at: athomehelper.com