Want to Buy a House? Take These Steps Now

If your goal is to buy a house in the next few years, prepare your finances and improve your chances of getting a better mortgage rate by taking these steps now.

Determine how much house you can afford. Long before you start looking at houses, calculate how much you can realistically pay each month for housing and how large a mortgage you may qualify for. Lenders generally want your debt-to-income ratio to be 43% or less — calculated by dividing your total recurring monthly debt payments (mortgage, car loan, student loan, credit card, and other payments) by your gross monthly pre-tax income. For more information and calculators to help you get started, see the Buying a House guide at www.consumerfinance.gov.

Set a down payment goal. To get the best loan rates, lenders generally require you to make a 20% down payment. Plan for that goal by setting aside a little money every month, even if you don’t plan to buy a house for a while.

Improve your credit score. Your credit score plays a big role in determining your mortgage rate, so you’ll want to check your credit reports to correct any errors or identify areas where you can improve your score. You can get a free credit report from each of the three bureaus every 12 months at www.annualcreditreport.com. While paying your bills on time is a key factor, you also can improve your score by keeping your credit utilization ratio low (the amount of credit you’re using compared to your total credit limit), even if you pay your bills in full each month. For more tips, review the Credit Score section of www.ftc.gov.


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