dilemma and made an appointment with her to discuss getting her into a home.
Like many would-be homeowners, Pratt didn’t understand what it was about her credit profile that was keeping her from qualifying for a mortgage loan. She had about $2,200 in overdue utility bills so the loan officer guided her through the process of writing letters to her creditors and arranging payment schedules for the past due amounts. About a month after writing letters and making payments, Pratt’s credit score went from 540 to 650, high enough to begin applying for a mortgage loan again. Pullman Regency eventually approved Pratt for an $86,000 loan and she purchased her home in October 2002.
As big a task as repairing your credit might be, it’s only a portion of the preparations you’ll need to make before you purchase your home. Although Pratt thought she was financially prepared to buy a home because she could afford her mortgage payment each month, she concedes that there were other factors she did not take into account. “I didn’t calculate my utilities, which ran between $200 a month in the summer and $500 a month in the winter,” says Pratt. “Also, I didn’t really consider medical expenses,” which is significant because her 10-year-old daughter, Shontoria, has asthma and Pratt suffers from epilepsy. It’s important to understand how these types of expenses may affect your ability to pay a mortgage and meet other financial obligations before you purchase a home.
William C. Johnson Jr., a Washington, D.C., attorney specializing in consumer protection and civil rights, says that many times the allure of buying a home clouds the buyer’s judgment. “When someone wants a home, their wants may override their needs or what they can afford,” he explains, adding that a prospective home buyer must consider his or her debt-to-income ratio before buying. “For the most part, a person’s debt level should not exceed 33% of their monthly income, and the mortgage should not exceed 25% of their monthly income.” For example, “if a person brings home $8,000 a month and their monthly mortgage is $2,000, then they aren’t that bad off,” says Johnson. “However, if someone takes home $3,000 a month and their mortgage is $1,500, it is conceivable that with a car note, utilities, and other bills, the $1,500 that’s left could be used up quickly, leaving them open when emergencies come up.”
There are a number of steps you can take to minimize the risks involved in purchasing a home:
Prepare your finances and credit profile. Versi Garrett, director of lending services at Neighborhood Housing Services of Chicago Inc., says start preparing your finances as soon as you make the decision to buy a home. “Concentrate on saving as much as possible,” she says. “After you buy, when something breaks, you are the landlord. It is important to save and be prepared for all unseen circumstances.” Pratt saved up four months of mortgage payments in case of an emergency.
Garrett adds that you should not incur additional debt