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Find answers to our Frequently Asked Questions.
Posted July 14, 2020

It’s never too early to start planning for the future, especially if you want to own a home someday. Building and repairing credit, saving, paying off debt, and organizing your finances can take time.

Take proactive measures today to help prepare for and achieve your dream of homewnership 

Low Credit Card Utilization

Lenders will want to see that you are not a financial risk when it comes to credit utilization. They typically want to see that you are not near your maximum credit limits; good credit card utilization is considered less than 35% of your total credit limit for all of your credit cards.

It’s also important that you are able to prove to lenders that you are responsible with your credit and will pay them on time. Keep your credit utilization low now to show lenders that you are a worthwhile investment when you apply for a home loan in the future.

Debt-to-Income Ratio

Home loan lenders look at what’s called your front-end and back-end debt-to-income ratios. Your front-end ratio tells you what you can afford in mortgage-related payments each month, which should not exceed 28%. To figure out your front-end ratio, multiply your gross monthly income by .28. For example, if your monthly paycheck is $4,000, you would be able to use $1,120 for a future house payment.

Your back-end ratio is your total debt-to-income ratio, including all of your debt, such as a mortgage, credit card minimum payments, student loans, car loans, child support, etc. Most lender prefer a total debt-to-income ratio below 36%.

Increase Your Savings

One way to keep your debt-to-income ratio low and ensure you won’t need to over-utilize your credit is to build your savings. Life is going to happen. Accidents and unexpected necessities are a part of life. No matter how much you plan ahead, you are inevitably going to need more cash than you have at some point.

Building up a good nest egg of savings will ensure that you have it when you need it and don’t continue to add to your debt.

Credit Scores and Resolving Credit Issues

A low credit score can keep you from acquiring a loan for a home, a car, furniture, and other things you’ll want and need throughout life. While you will want to start establishing credit accounts to build good credit, you also want to be very careful about how you use it.

Your credit score will influence how large your down payment will be and the interest rate you qualify for. Also, blemishes on your credit history can negatively influence your score for years, even if you have resolved them. Clearing up negative marks on your credit report now will help immensely in the future.

Looking to purchase a home? Not sure where to start? View this First-Time Hombuyer Webinar to learn more.

 

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