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Question for the Money Doctors

Question submitted on Mar 25, 2019.


Preface, I'm trying to buy my first home. In my reading, I've read the 50/30/20 rule to live by but I've also read that your mortgage should not be more than 25% of your annual income. In my area, homes are ridiculously priced (i.e. 400K for a 1200 sq foot house) and would force me to live more of a 60/20/20 rule - should I just wait until the housing market settles down?


I am not sure about these "rules".   They may be guidelines.   Also the banks have some guidelines before they will approve a mortgage for you.  We need more information to give you a more complete answer.

Your local credit union may have some home buying seminars - I suggest going to them to learn more about what it takes to purchase a home.

In the meantime there are things you can do to prepare to buy a home.

1.   Check on your credit.   Does it need to be improved?  Please review your credit report.   You can get a free credit report at    This will take you to the 3 credit agencies.   You should review the credit report carefully to make sure there are no errors.   If there are any derogatory comments, work on cleaning them up.

2.   Save for your down payment.    Ideally you should put 20% down for a home.   If you are looking at a $400K home, then your target down payment is $80,000.   Set a goal to save this.   Put money into your savings every month towards this goal.

3.   The banks are going to require at least 3 months of expenses in your checking and savings account.  Work on building that up.   If you have a tax refund, use it for this goal.

4.  Pay off debt.   The bank will not give you a mortgage if you have a lot of outstanding debt.  Work on paying off your car loans, credit cards, student loans, etc.

5.   Increase your income.  If your income is low, work on increasing it.  Do you need more job skills?  More education?   Improve your value to your employer so you can get paid more.

Please go to:

Read the articles about home ownership, credit, and savings.

Good luck!

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