Saving & Spending

You’re probably not going to pay for your new home with a briefcase full of cash, so you’ll need a mortgage. And, unless you’re a veteran and qualify for a zero-down VA loan, most lenders will require you to put down a minimum of 3 percent.

Saving for a down payment is one of the largest factors in buying your first home. It takes time and preparation — but the more you save to put down, the better your terms will be when you take out a mortgage.

Your ability to get a mortgage and the terms of the loan will also depend heavily on your credit score and amount of available credit.

Your credit score is a three-digit number based on how much you’ve borrowed in the past and how responsible you’ve been in terms of paying your bills. For example, regularly making late payments can negatively affect your credit score.

Lenders will also look at how much of your available credit you use. People who consistently max out their credit cards are a riskier investment, so it’s recommended to use less than 30 percent of your available credit on your credit cards if you want to be approved for the most money possible for your loan.

Your Loan Options

If you’re interested in buying a home but don’t have the financial credentials to qualify for a loan, don’t panic — you still have a few options.

In the meantime, the most important thing you can do is improve your credit score. Getting into the habit of making payments on time is vital, and this simple practice will have a tremendous impact on your score.

You’ll also want to take steps to reduce your outstanding credit card balances relative to your credit limit. For example, if you have three credit cards with limits of $3,000, $4,000, and $5,000, your total credit limit is $12,000.

That doesn’t mean you should use that entire limit, though. For an ideal score, you’ll want to stay below a 30 percent utilization rate for each individual card.

Another practice that could help your score is paying off your balances twice a month instead of once; in addition to ensuring you never miss a payment, you’ll also further limit the amount of credit that you use.

Depending on your situation, you might qualify for an FHA loan. This type of loan is insured by the Federal Housing Administration, and it features lower down payment requirements designed to make purchasing a home feasible for more people.

The Callaway Bank’s mortgage lenders can help you determine whether you meet the qualifications. Either way, though, you’ll need to determine how much of your income you can afford to budget for paying your mortgage.

To calculate your budget for a mortgage, start with your gross monthly income. Subtract what is already earmarked for other financial obligations such as car payments, student loans, and spending money. Don’t expect to be able to devote the remaining balance to your mortgage, though. You’ll want to save money in other ways, and you should always be prepared for the times when your finances are stretched by unexpected demands such as health issues, injuries, or job loss.