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Getting your Financial Picture in Focus

Here's some important advice: as soon as you have made the decision that you want to buy a house, one of your first steps should be to make certain that you have a clear picture of your financial situation. At a minimum, you will most likely want to do the following:

Access your credit score to make certain that there are no discrepancies or problems in your credit history.
You can get a free copy of your credit score here.

Do an analysis of your current financial situation: where the money comes from (your total income) and where the money is presently going (your current spending). Develop a
household budget for your current situation. Get into the habit of using it on a consistent basis!

Keep your spending patterns in check. We have a number of
budget hints to help.

Do an analysis of how a house purchase will affect your budget. Be sure to factor in not only mortgage payments (including insurance and taxes) but also funds for items such as repairs and maintenance.

Begin to gather items such as: last 3 years Income Tax returns, current copies of pay stubs, records of any past derogatory credit history that has since been paid off, and records of any supplemental income you may have. If you are self employed, you will need all business records and tax returns for the last 3 years. Having these items close at hand will save an enormous amount of time when the Mortgage Company begins to ask for them (and ask for them they will!)

If it is possible to do so without adversely affecting your down-payment situation, pay off minor debts. The less debt you have the easier your Mortgage "sailing" will be.

Do not incur any new debt. Many mortgage applications have been stopped in their tracks because the applicants had decided a week before the application that a shiny new car with a big finance or lease payment would look just perfect in the driveway of their new home. Since mortgages are based on debt to income ratios (the amount you pay out monthly versus the amount you bring in) a newly acquired debt could be enough to throw the ratios off and make the mortgage unobtainable.

Back to Your Checklist

RECOMMENDED READING

Making the Most of Your Money by Jane Bryant Quinn. A complete guide to taking control of your personal finances.
Personal Finance for Dummies by Eric Tyson. Easy-to-understand approach to your finances. Highly recommended.
 

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