Loans and Down Payments

"Neither a borrower nor a lender be" could be translated as: Maybe it's time to stop renting (borrowing) and buy a home of your own. But how do you know what you can afford? And how do you make the leap from renter to good loan risk? There are many types of loans, but there are two main criteria for qualifying:

Good credit. A good credit history with no or low debt is the ideal. Even if you're way ahead of the repo man, if you're carrying high debts you need to reduce them. Contact creditors and establish realistic payment schedules. Start paying new bills on time and in full. If it takes a year to get your debts under control, put off house-hunting, find the bliss of discipline, and know it will be a year well-spent.

Income. Have you held your current job for at least two years? As a loan prospect, you're considered a better risk if you have a low but steady income rather than a short-term higher income. Will you be secure (and content) for the next three years? Are you confident in your company's stability?

Speed up your savings savvy

Let's start with the main chunk of change: the down payment. There's some wiggle room here, but for a conventional loan you're looking at 5, 10, or 20 percent of the purchase price. (At 20 percent, you avoid mortgage insurance, which is otherwise up to 1 percent of the home's purchase price.)
Let's say you have good credit and a steady income, but ponying up $24,000 for a 20 percent down payment on a $120,000 house is still a pipe dream. Don't worry—just start planning. These tips will help you reach your goal faster by changing, asking, selling, and using creative financing. And don't be afraid to think small. Once you establish equity in your first home, you can always trade up.
 

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