One large factor in being approved for a home loan is your debt relative to your income. For many people, it may not be an easy task to boost income, and you’ve got to demonstrate an increase in income over time to have it count for mortgage qualification. Reducing your debt is a faster solution; you can achieve results within months instead of years, and the effects are positive and far-reaching.  

Pay Down Debt

Paying down debt is a good way to boost your borrowing power. One factor that lenders evaluate is how much debt you have relative to your income, and also how much debt you have relative to your potential credit limits. Carrying a little debt on a credit card isn’t such a bad thing, but having your credit cards maxed doesn’t look good. Make it a point to pay down revolving debt to less than 30 percent of your available credit limit, and consider paying installment debt a few months ahead to look good to your lender.

Pay Off Debt

When possible, pay off debt. The less debt you have, the more breathing room you have between your debt and income levels. With more space between your debt and income, it’s easier to qualify for a home loan. If you’ve got three credit cards and you can afford to pay one off, pay it off. That’s one less minimum payment you have to make, and less overall debt in your big-picture finances.

Be careful What Debt You Eliminate

Not all debt is bad debt. Installment debt, such as a car loan or student loan, is self-eliminating. As long as you make the payments on time, that debt can help you build a positive credit history. Likewise, revolving debt that is low relative to your potential credit limits is also good for your credit. By paying off revolving debt entirely, you lose the opportunity to demonstrate a positive payment history and can actually hurt your credit. Know what you’re eliminating before you pay it off, and calculate how it will affect your credit score and your overall borrowing power.

It doesn’t matter how successful you are, financially – if a lender can’t see it, your financial success doesn’t count. You could have a six-figure income with no debts and a great stock portfolio, but unless you can show documentation to the lender, it won’t matter. Create a complete, easy-to-follow paper trail to demonstrate your financial health when you’re ready to buy a home.  

Document Everything

Income doesn’t exist unless you can document it. If you get paid in cash and pay most of your bills in cash, most lenders would consider that the income never passed through your hands. Unless you can document the income and the bills being paid, lenders have no way of knowing what you’re actually earning and what you’re spending.

Make sure you can document everything relating to your financial health in order to give your lender a complete picture. This includes things like prior years’ tax returns, pay stubs, bank statements and copies of any outstanding loans or debts. You may also need to provide documentation of other earnings and assets, such as a stock portfolio that pays dividends, alimony or rental income you receive from another property.

Make Your Paper Trail Easy to Follow

Don’t just throw a bunch of papers at your lender and expect him or her to make sense of it. Make your paper trail easy to follow. It helps if you assemble a budget, and attach copies of relevant documents. That way your lender can more easily follow what you’re showing, and you can double-check to make sure you didn’t leave out any income or debts.

Do this over a couple of months before you start home shopping to make sure you develop a complete picture. If you have an accountant, review your paper trail with your accountant before you take it to your lender to make sure you’ve completely documented everything that’s relevant.

One of the big things lenders look at when they’re deciding whether to approve a home mortgage is your qualifying income. Your income has to be high enough to cover all of your financial responsibilities; most lenders look for a ratio based on percentages of your total income. If the mortgage for the home you want to buy would be too high based on your income, you might not be able to qualify for the mortgage. One way to boost your borrowing power is to lift your qualifying income.

What is Qualifying Income?

When lenders evaluate your income, they look at several types of income. They look at things like wages, commission, overtime, bonuses and other work-related income. Lenders also consider your welfare, pension, tips, dividends, interest, consulting fees or rents.

Qualifying Income Must be Regular and Continuing

To qualify as income for the purposes of approving a home loan, you must demonstrate that your income is regular, stable and continuing. Specifics vary, but you may have to demonstrate a two-year history – or more – to count income as qualifying income. You must also be able to demonstrate that your income is likely to continue in the same range in the future.

This means that if you get a new part-time job or start consulting on the side, you may need to do it as long as two years before a lender will accept this income as stable and continuing. Don’t expect to get a part-time job a month before you start house-hunting and count the income toward your loan approval. The plan you create to lift your qualifying income must be a long-term plan to be effective.

Rent as Qualifying Income

Alternately, if you buy a multi-family property, you may be able to count the rent for the other units toward your qualifying income. This enables you to expand your buying power, and collecting rent can also help you financially. You can establish equity quickly and earn far more during the same period of time as in a single-family home.

Be creative in thinking of ways to lift your qualifying income to boost your home-buying power. Keep in mind that you must demonstrate that your income is stable and continuing, so a short-term spike in earnings won’t count toward getting a bigger loan. But with the right long-term plan, you can boost your borrowing power and buy your dream home!

Buying a home is something that most people plan for a long time. Many people rent apartments for years while they wait to be in the financial position to buy a home, and decide where they want to settle down. Ultimately, this strategy can cost you valuable time and money. You could lose years of opportunity to build wealth by renting, so make home ownership your first priority in your quest for financial success.

Home Ownership Builds Wealth

Renting a home or apartment is literally throwing money into a black hole. You’ll never see the cash again, and you’re not getting anything for your money; you’re essentially renting long-term storage for yourself and your belongings.

Home ownership, on the other hand, builds wealth. From the very first mortgage payment you make, you’re building equity in your home. If your home appreciates in value, or you buy a fixer-upper and make improvements to the home, your investment can yield drastic benefits. It’s not impossible to double your investment in a few years, depending on where you buy and how much the property appreciates. A home is an investment; not just a place to store you and your stuff.

For every year you delay in buying a home, you’re literally costing yourself money. Depending on the home you could buy, you could be costing yourself anywhere from $5,000 per year to $25,000 per year – or more – by not owning your home. Over five years, this could add up to well over $100,000.

Don’t wait to buy a home. You’re just costing yourself money for every year that you don’t buy. Invest in your future and your financial health and make the decision to buy your home now. Stop paying money to a bottomless hole and start seeing a return on your investment. You might need to start small, but in a few years you can move up to a beautiful new home, while your friends are still renting or just starting the home ownership process.

As a home buyer and as an individual, you need to understand that you control your buying and investing power. The estimates that you get from lenders only shows a small portion of your financial life, shown through the lens of that lender’s product. It’s up to you to take a big-picture view of your buying and investing power, both in the present and in your future. Don’t rely on lenders to tell you what you can and cannot do; decide for yourself what you can afford and plan your life according to your vision.  

Lender Viewpoints May Not Reflect Your Lifestyle

When lenders calculate how much money they’ll loan you, they typically go according to a formula that they’ve established to balance potential risk. Depending on the lender, you may encounter a more or less conservative formula than your personal thoughts on financial risk. For example, a lender may say that you make enough money to borrow $150,000, but you may look at the potential mortgage payments and decide that your lifestyle is such that you can only afford to borrow $120,000. It’s up to you to evaluate all of the pieces of your life and decide what you can afford and want to spend; don’t rely on a lender to do this for you.

Consider Your Long-Term Investment Plans

When you’re thinking about how much to spend on a home, consider not only the mortgage payments but also your long-term investment plans. A home should not be your sole investment planning. You should also invest in an IRA or other retirement savings plan to ensure you’ll have enough money when you retire.

Make sure that any home you buy leaves you enough money to invest in your other long-term plans and still meet your financial obligations. You may decide that you need an extra $500 per month for retirement savings and want to buy a smaller home as a result. Only you can make this determination, so think about your long-term plans and other investment options when you buy.

The key to achieving long-term success is to have a plan. You need to know where you want to be in 5, 10 and 20 years in order to begin working toward those goals. The same thing applies to home ownership. Envision the properties you want to own in 5, 10 or 20 years. Do you want to own a single-family home for the rest of your life, or do you want to own real estate as an investment and source of income? Is there a certain type of property you want to own, or properties you’d like to generate income?  

How Do You Think of Real Estate?

How do you think of real estate? Is a house merely a home to you, or are real estate properties potential investment opportunities? If you think of real estate as a potential income source, it’s time to put together a plan to decide what type of properties you want to own, and how you can achieve this success. Formulate a plan for buying and selling that will help you achieve your goals.

If you think of real estate as simply a place to live, it’s still important to envision the properties you want to own to get you to your dream house. Most people don’t start out in the house they’ve always wanted; many people buy a ‘starter’ house and then sell it and move up as their financial situations change. Think about your ultimate dream home. How can you achieve your goal of owning this home? Do you need to start with a smaller home and sell in five years?

It’s equally important to envision the properties you want to own and your path for reaching those properties whether you’re looking for your dream home or whether you see real estate as your path to financial success.

Buying a home presents a lot of challenges at the best of times. Buyers must find their dream home, make an offer, negotiate a price and get financing. For more and more families, obtaining financing presents its own challenge.

Many families feel that they simply can’t overcome the hurdles to home ownership, and tell themselves that they can’t do it or buying a home isn’t for them. That kind of negative self-talk can actually prevent you from achieving your goals, so you’ve got to make sure you tell yourself the right story to achieve financial success.

What You Tell Yourself Matters

What you tell yourself about your financial success and what you believe about what you can achieve makes a big impact on what you can actually do. If you believe you can’t save enough money to make a downpayment on a home, you won’t do it. You won’t go through the steps of making a budget, finding ways to cut corners and working toward building a savings account. These are things you’ll only do if you believe you can achieve your goals, and if you don’t think you can have financial success, you won’t have financial success.

Learn to tell yourself a positive story and create a plan for you to reach your financial goals. If you feel daunted by trying to save a 20 percent downpayment for a home, start with saving 5 percent. If that seems too difficult, start by saving one percent. The key is to actually begin taking the steps to achieve your goals.

As long as you believe you’ll never own a home, you’ll never own a home. If you know you face challenges, learn to think of them as challenges you can overcome; not hurdles that stand in your way. With the right kind of positive attitude, you can achieve your goals and become a financially successful homeowner.

Saving money for a downpayment on a home is the biggest hurdle to home ownership that many people face. In our consumer-driven society, saving money is difficult at the best of times, and can be downright impossible when stakes are high and you’ve got to save a big dollar amount. If you’re thinking of buying a home but not sure how you’ll ever save enough money for a down payment, consider these strategies:  

Stop Paying Rent

For most people, the biggest expense is housing, be it rent or a mortgage payment. Need to save a lot of money? Stop paying rent. Consider a house-sharing situation, temporarily move in with the parents or even move to a less expensive apartment. If you can cut your housing expenses entirely for 6 to 12 months, chances are good you’ll have enough for a house payment.

Cut Your Food Bills in Half

The average family spends a lot of money on food. Eating out is a big expense, and even trips to the grocery store can challenge the budget. Watch what you spend. Look at how much you spend eating out, and what you buy at the grocery. Chances are good that you can drastically cut your food bills just by cutting back on eating out, and by scrapping excess food or goodies at the grocery store. Eat generics, cut soda out of your diet and shop in discount stores. It can make a big difference.

Avoid Expensive Vehicles

Got an expensive car? Consider selling it. Car expenses are essentially a black hole; you can find a relatively inexpensive car that serves the same purpose, and can get you around town for a fraction of the cost. If you’re shelling out big bucks every month on a car payment, think about how quickly that could add up for a home downpayment – and downsize your car.

Non-Traditional Homes can Generate Wealth

Few homeowners think to themselves “I want to buy a duplex” or a fourplex with the idea of generating cash. It’s not the traditional view of homeownership, and most home buyers have other plans. However, buying a multi-family property that generates revenue can make a big difference in your income strategy and your net worth. With a long view in mind, non-traditional homes are a great way to generate wealth.

Consider a four-family home. You and your family live in one unit, and you can rent out the other three units. You then have a source of rental income, which is typically higher than the mortgage, generating excess income for you each month; in some cases, enough to pay your share of the rent, too.

Additionally, in something like a fourplex, the units can appreciate individually, boosting your net worth. If each of the properties appreciates by four percent, you’ll earn far more than if a single property appreciates by four percent.

Overall, buying a fourplex versus a single family home can increase your net worth by as much as $100,000 – or more – in as little as five years. You can literally triple your cash investment when you consider a multi-unit home, or other non-traditional housing. Then you can buy your “American dream” home with more money down, or a higher net worth; or you may decide to keep generating cash through real estate as a long-term financial strategy.

Selling a home is an emotional process, not just for you but also for the buyers. When people make a decision to buy a particular home, a lot of factors come into play, including location, amenities and price. But it’s never these rational details that tip a buyer’s hand and make them decide to purchase a particular house; instead, it’s the emotional attachment or something very specific that lures buyers to a home. This is the hot button. Identify your home’s hot button and emphasize it in your marketing materials in order to draw the buyers who will really want your home.  

Identify Your Home’s Hot Button

A hot button can be anything about a home, or even a series of things about a home. Does your house have a fantastic master bathroom? A fabulous kitchen? Great flow? Think about what originally attracted you to your home; that’s probably the home’s hot button. Things like fireplaces, views and gardens tend to resonate with buyers, as well as features of the home that really go above and beyond. Figure out what the best features of your home are, and those are your home’s hot buttons.

Emphasize the Hot Button in Sales Materials

Once you figure out what makes your home unique and desirable, emphasize that in sales materials. If your home has a beautiful fireplace or fantastic views, don’t let that get buried in the rest of the sales copy; emphasize those features. Pictures are worth a thousand words, so include photos of your home’s hot buttons on your sales flyers, your website or your home sale ad. Keep in mind that if your home is roughly equivalent to other homes, it’s the hot button that is going to draw buyers and make your home unique; that’s the angle you’ve got to really market to get qualified buyers who are actually interested in your home.