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 (plus a down payment, if you don’t have much equity in your current home). Renting will give you a chance to really explore your new city and find a neighborhood that suits you.
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% is the minimum, 10% is even better — will help as well.
For more on getting your finances in shape, check out real estate columnist Ilyce Glink’s excellent site, ThinkGlink.com. Look at the tabs on the top and click on “real estate” and then “financing.”