Financing is Everything
A small percentage of people pay cash for their homes. The rest need financing. Favorable financing is the difference between a good deal and no deal. Before you consider a real estate purchase, you must get your financial house in order.
1. Check Your Credit
Six months before your next home purchase, check your credit report. Mistakes happen. This gives you time to correct any problems that may arise. You can do it online for a small fee, or if you know a good mortgage broker, they can run it for you at no cost. If you need a lender recommendation, please call me as I’d be happy to refer you to someone I know and trust.
2. Know Your FICO
The mortgage broker will provide a report with three scores. Lenders go by the middle one. Above 850? You’re amazing. Above 720? You’ll get easy approvals and the best rates. Above 680 is still good. Above 620 means you can apply with conventional lenders, but approvals aren’t as certain, and you’ll pay higher rates/fees. Above 600 is borderline. Below 599 means alternative lenders who charge higher rates/fees, but these can be a good solution if you shop carefully.
3. Damage Control
If your scores are lower than expected, examine the credit report. I once found a problem with a prior cell phone bill that I didn’t even know existed until I ran the report. If you find something you disagree with, write to all three credit reporting agencies. They are required by law to consider and record your claim. Also, keep in mind that a competent local lending professional can advise you further on how to clean up your credit to enable a home purchase.
4. Control Spending
Limit your credit card balances to 25% of max. Use fewer cards. Keep a 3-6 month cash reserve. Invest the maximum in your tax-free retirement accounts. Most of all, cut back on your discretionary spending. Limit those dinners out, exotic vacations, designer shoes and fancy new cars. All of these lose value. Real estate is a sound investment that historically gains value, increasing your net worth over time.
Try these free calculators to determine payments on new purchases, refinancing, affordability and rent versus buy. calculators
FICO Scores Explained
Credit scoring demystified: factors considered, what it means and what you can do to improve your score. booklet
Free Consumer Credit Reports
Check your credit for free. more
Specialty Credit Reports
Find out what financial data banks, employers, insurance companies and others have on you. more
Low and No Document Loans
With a high-end credit score, you can get mortgages with few documentation requirements. more
Interest Only Loans
A great product for the right situation, but consider the costs. more
Risk assessment on one of the lending industry’s popular new products. more
Free tools from the government to help you manage your money. more
MSN’s Guide to Home Loans
Everything you need to know about borrowing money to buy a home. more
What Can I Afford?
Want to know how much you can buy? Complete the form below, and we’ll follow up with a free, no-hassle estimate: