Dear Liz:I’ve been supporting our family of four on a $40,000 income while my husband finishes engineering school. Thankfully, he graduates in May and has accepted a job in another state. That means we’ll need to sell our home in this rough market, and I’ll need to find another job. Our household income should double, but what are the chances of our qualifying for a home loan? Both of us have credit scores around 800. We have $11,000 in credit card debt and he’ll have a student loan. We also owe $6,500 on two cars. How can we qualify for a mortgage?
Answer: By putting first things first. Make sure you’ve sold your current home before you commit to a mortgage on another one. Too many people have sunk their family finances by being stuck with two mortgage payments when their previous houses fail to sell.
You’d be smart to rent for a while, anyway, while you find a job, pay off that credit card debt and build up an emergency fund.
That’s much better than rushing into a home purchase you may later regret. Interest rates aren’t likely to soar any time soon and home prices in most areas are still falling, so there’s not much of a penalty for taking your time.
By the way, paying down your credit card debt also will help protect your credit scores, which are crucial these days to getting a mortgage with a decent rate. A decent down payment — 3.5 percent is the minimum, 10 percent is even better — will help as well.
Dear Liz:My husband and I have not had any credit cards for almost 10 years. We just paid off our vehicle with his retirement account. We now owe only for our home. We have no other debt except utilities. I draw a disability check each month, and I keep thinking we should be able to save but have been unable to. We are not extravagant by any means, rarely going out to dinner or movies. What are we doing wrong?
Answer: Well, for one thing, you drained a retirement account to pay off debt. That’s extremely shortsighted, because you incurred unnecessary taxes and perhaps penalties to tap money that should have been left alone to grow. (And yes, it will grow again. Eventually.)
What’s probably happening is that you’re waiting to save until all your other expenses have been paid. That rarely works, because expenses have a mysterious way of rising to meet your income.
You need to turn your priorities around and save first — something out of every paycheck or other money that comes your way.
The best way to do that is to put your savings on automatic, so the money is swept out of your checking account into a high-yield savings account. If you have to make a decision each paycheck to save, you’ll typically find other things to do with that money.
Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What’s at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com. Distributed by No More Red Inc.
