Buying a Home?: Getting Started and Credit Tips for 2015

Jan. 06. 2015

It is that time of year again….where we set resolutions and goals of what we want to achieve in 2015.

Now, maybe not all of you write down your goals like I do, but I can’t help it. I look at them on my dry erase board above my desk every day. It keeps me motivated.

Now, because I am in Real estate I start this year off by checking in with people who may have mentioned wanting to purchase last year, but perhaps did not get around to actually purchasing. And I decided to write this blog to hopefully inform, if not inspire you (if you are a buyer). I am not going into the nitty gritty detail and the process of buying like I have in past blogs, here (in case you want to read further). But would like to get into the first few crucial steps of home-buying (and honestly what every *good* Realtor will ask you when you tell them, “I am thinking of buying a house, can you show me this one?”)

So, you want to buy a house in 2015?

First, things first-have you been pre-qualified?

Q: What is this pre-approval process you speak of and why is it so important, Ashley?

A: Well, let me start with this. You must talk to a lender first! How do you know what you can afford (and what price range to start browsing homes online) if no one has broken down the numbers for you with taxes and insurance and what you need to put down and explained expectations? Things have changed since the financial chrsis. And you should know what you are getting into-and most importantly what buying a home REALLY COSTS.

Q: What’s the difference between being pre-approved and pre-qualified?

A: When you are “pre-qualified” that is the most basic form. It means you may have talked to a lender about-your score, what you make and what you pay every month-and boom you are pre-qualified for a home! BUT a pre-approval goes a little bit further. This means a lender has looked over documentation and your income and assets in more details and this also makes you a stronger candidate when submitting offers (and less risk later down the road for something to happen during the financing process)!

Talking to a lender is crucial for a few reasons:

1. A lender will help tell you what your monthly payments will equate to. You can even work backward. You can start by saying, “I am not comfortable spending over $1800 per month on a mortgage-including taxes and insurance-what will that get me?” and he can tell you where your price range needs to be set and what you can expect, then you can see where exactly you can buy in your range, and if the time is now, or perhaps waiting and saving more.

2. A lender can, most of the time- fix or give great pointers on improving your credit! I had a buyer who wanted to purchase and the lender looked over everything and told her if she paid off this one small balance her credit would increase enough so 1. she would be qualified to buy and 2. get her a tad-bit lower of an interest rate. Done. Mission accomplished in a short amount of time as well!

3. A lender can also tell you what route you may want to go financially. Perhaps a different program may work best for you if you only planned on keeping a house for 3-5 years or if mom and dad were going to help with payment a conventional type of loan that ALL down payment money can be gifted. There are various products for various buyers.

4. A lender will also let you know if it is important for you to file this year’s taxes to be qualified for more or if you past two year’s tax returns will work. Your DTI (debt to income ratio) is an important part of how much you will be able to afford-so be honest, when filling out an application for a mortgage, take a look at current credit balances for an accurate answer and no surprises.

What will a lender want from you?:

• Past two year’s tax returns handy or income verification
• Fill out an online application-social security number for a credit run
• Accurate information of bank accounts, assets and in the future-explanation of any large cash sums, bonuses etc.
• If you have had any recent job changes-a letter from new work place may be in order
• If parents or trust may help fund the payment-disclose so you can hear options!
• Honesty is the best policy! Disclose. Disclose. Disclose! (In the past I have had clients hold back information which ended up costing them a home in the end, because it was a condition that couldn’t be cleared)

So what are you waiting for? Talk to a lender and set some financial goals–even if you don’t think you will purchase this year, it is a good idea to get your mind right so you know what you want to achieve to become a home owner!

CREDIT TIPS. Here are some credit tips I have learned as an agent, that you may already know, but thought I would reiterate. If home buying is in the cards in the near future for you, I would take a look at these tips below, then follow up with talking to a lender to advise what’s the best route to give you the best score. **Remember the better your score the better your interest rate when you buy!**

• DO NOT PAY LATE! I don’t mean a few days late (though still not a good idea), but when your payment is so late that it is recorded on your credit report, this can delay home buying for up to a year unless you can somehow fight it to be dismissed. Set alarms in your phone a few days before bills are due. Set up online bill payment. Late payments are the biggest hits on your credit report.
• DO have several lines of credit. Showing you can manage money with a car payment and a credit card (major line like Visa, etc) is good.
• DO NOT OPEN A NEW LINE OF CREDIT before you plan on buying a home (unless a lender advised it). Even in doing so, sometimes an account will need to be open 6mo. before you can buy if you do not have enough credit.
• DO CARRY A BALANCE. It can be good to put on a tank of gas, then pay it off, but if you keep your balance less than $100 per month, the revolving credit can actually increase your credit score. Make sure it makes sense for you and you are getting some type of rewards if you don’t like carrying a balance.
• DO NOT HAVE A BALANCE OF MORE THAN 30% OF YOUR CREDIT LIMIT. When you start to max out your cards, it will start to impact your credit score negatively. So be sure you are paying attention to the limits on your cards before you book those airline tickets, it may better serve you on a card that has no balance that has been open longer.
• APPLY FOR ACCOUNTS ONLY WHEN NECESSARY. In college they used to get us to fill out applications for a free t-shirt, sounds good right? No. Running credit checks for you to buy a couch, a fridge, a car, and a credit card within a month or so can shows frivolous spending habits, so you don’t want to many inquiries on your credit. Open accounts that are only necessary. On the contrary, before you buy a home you can talk to several different lenders before purchasing and have them run checks and within a 30 day period it should not count against you (same goes for shopping different car dealers).
• VIEW YOUR CREDIT REPORT. You can do this for free once a year or pay different websites to monitor your scores for a low monthly fee. You have the right to know! You’d actually be surprised what can pop up on your credit report…. Close out that Citi-bank card you were approved for in your early 20’s, it could be a good idea.
• DO NOT GET OLD (GOOD) DEBT OFF YOUR CREDIT REPORT. This means, if you paid off a car, do not try to get that removed from your report ASAP, this is good debt. However, items that fall into collection will likely stay on your report for 7yrs, which is bad.
• DO NOT TAKE OUT CASH ADVANCES. Basically, you do not want to put a huge sum on your card-maxing it out or take out cash advances–these items indicate risk, when you do that, your score can plummet.

Use lines of credit not as a way to finance your life, but as a way to build credit so you can have the life that you want in the future.

Thanks for reading and if you have any questions, want to talk to one of my many great lenders to get started or pick my brain about the market-let me know, happy to chat!