You want to buy a home. How do you go about starting the process?

Before trying to purchase a home it is extremely important to know 2 things: 1. your credit score and 2. your debt-to-income ratio.

One piece of advice: don't be afraid to speak to a lender, they are there to help you get the best financing possible for you and to help point you in the right direction to fix your credit.

To find out what your credit score is go to www.annualcreditreport.com. After filling out personal information you will receive your credit report from each of the 3 credit bureas. You will want this information, but you will also want your credit scores. You can purchase your scores from this same company for around $5.95 per credit bureau.

The formula for calculating your debt-to-income ratio is monthly fixed expenses divided by gross monthly income (before taxes and deductions). Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances that it will take you longer than 6 months to pay off; car payments, alimony, child support, etc.


Do not include grocery, telephone, and utility bills or any debt in the calculation that will be paid off in the next few months.


Sample debt to income ratio calculation:


Gross monthly household income: $5,000


Fixed expenses: $1,560
[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]

Debt-to-income ratio calculation:


$1,560
$5,000 = 31%


A debt-to-income ratio of 31% is considered very high to debt management professionals; however, it is not considered too high for many lenders. Ideally, to budget managers, a debt-to-income ratio should not exceed 20%. Of course, the lower it is the better.

If you are looking to purchase a home please give us a call at 910-483-2244 and we will assist you in getting your financing in place.