Preparing your finances for home ownership

So far, Money Matters topics have been determined by conversations I’ve had with clients, current events or simply what is going on in my life. My wife and I recently completed construction on our new home and closed a mortgage on it, so I’d like to share some insights into the process and tips on assisting you with owning a home. July will be dedicated to preparing for owning a home. If there is a topic you’d like me to cover, please email me at

For many families, there often is no greater financial goal than owning a home. Any major goal benefits from some thoughtful planning,and this certainly is true about the journey to home ownership.

In these next few columns, we’re going to talk about how you can begin preparing your personal finances for home ownership. When your finances are in good condition, you’re more likely to have access to the most favorable rates from financial institutions. Those rates can make an enormous difference in the amount you spend and save over the life of the mortgage.


One of the first steps you should take in preparing fora mortgage is to pay down your existing debt.This debt can affect your mortgage application and timeline in a number of ways. Here’s how:

Your debt-to-income ratio.  Financial institutions want to see that you have the financial capacity to pay your debts over the long run. One way to measure this capacity is to look at your debt-to-income ratio, or the amount of your total monthly debt obligations (including your mortgage expenses), compared with your gross income.

Ideally, your total debt obligations should be less than a third of your gross monthly income.  A lower level of debt is even better,both for your mortgage application and your personal finances.

Your credit score.  Debt affects your credit score, which in turn affects your mortgage application.

The amount of debt you owe counts for 30 percent of your credit score.This part of your score is determined, among other factors, by the amount of credit that you use, compared with the amount of credit available to you. The quality of your credit is a major consideration in your mortgage application, and the less you owe, the higher your score will be.

Saving.  The more debt you have, the harder it can be to save. This is a time when you need to save, because a down payment gives you an enormous advantage.  Credit card debt in particular is draining, because this debt often combines high interest rates with very low minimum payments that read just every month.  Under those circumstances, you can end up paying more interest than you anticipated, and that interest could have otherwise been used for saving.

Paying it off.  When you’re thinking about how to pay off your debt and improve your future mortgage application, it can help to think first about the sources of your debt.

Expenses.  First, consider the items that you purchase. What are you spending your money on?  Are these expenses basic needs, or are they discretionary items?  Which expenses can be cut? It can help in this case to look at your past statements and receipts for an accurate account of your spending.  Cutting expenses allows you to stop overspending and create room in your budget for paying down debt.

Habits and attitudes.  Are there circumstances that trigger your impulse to overspend? How much attention do you pay,day to day,to your spending and balances? A budget program or notebook helps you pay attention to your spending, as you record and categorize your transactions. When you identify causes and circumstances behind overspending, you can start thinking about healthier financial alternatives.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at 


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