Clean Up Your Credit Score to Buy a New House

download (63)Buying a house is a dream come true for most of us. It is a practical and a financially wise decision as well. No wonder the real estate market is ever buzzing with activity this year. However, as much as we love the idea of buying a house, the high amount of money involved can make some of us weary about the process. The most basic step in buying a house is planning your budget. Based on income and savings, one can get an estimate of the price of house they can afford. A majority of home buyers look for financial assistance from banks or other lending institutions to purchase their house. In such cases, along with Income and savings, credit scores also play a huge role in deciding whether a loan can be extended to an individual, as well as the amount of loan. Real estate agents can also help you decide the budget and find a property that fits within it. Agents are also great resources to help find a lender who can clean up your credit score.

Check your Scores/Clean up your Credit Score

Credit scores are a way to measure the “credit-worthiness” of any individual i.e. whether the person will be able to pay back the loan on time. Your scores are based on your credit history, the number of credit lines and loans held by the individual, weather payments for those have been made on time, the amount of outstanding balance one is carrying on other loans and credit cards etc. So the first thing to know before you decide on a home is whether or not you have a good credit score or if you need to clean up your credit score. If you have been paying all your outstanding bills and installments on time, then you most likely should. It’s still always good idea to check, never assume.

Identify your weak spots

There are three main credit Bureaus in the US – Experian, Equifax and Trans-Union to review when you go to clean up your credit score. While they have some differences in the parameters on which they base their scores, the scores from all three bureaus are typically pretty close. You can get your credit report from one or all of the bureaus by paying a small fee. Review your report well, especially the section that talks about adverse accounts. This section lists down the accounts where you may have missed payments, defaulted etc. If there is a specific credit card where you have missed a payment more often than others, make a note of it. Similarly, check your average outstanding balance against your credit limit. If the ratio is too high, make a note. Also, check if any of the entries don’t add up since sometimes, even the Bureau can get their information wrong.

Correct some mistakes, undo others/Clean up your Credit Score

For the accounts identified where you have been missing timely payments, it is time to buckle up and make sure you begin paying your bills on time, which, will help clean up your credit score. As you get regular with your payments, your score will start improving over a period of few months. In case you have had one or two late payments, you can also call the company that has registered the late payment and request them to remove it from your credit record. Most companies willingly do this for those who missed the payment deadline once or at max, twice. Similarly, if you have too many open credit lines with small outstanding balances and can spare some money, then take the extra effort to pay all dues and close these credit lines.

Request a credit limit increase

If on some credit lines you have been regular with your payments but your ratio of outstanding balance to the credit limit is high, then a simple way to make this ratio look better is to request that your bank or financial institution increase your credit limit. However, remember that a credit limit increase only be accepted if you have displayed good payment behavior. Also, make sure to not exhaust the increased limit because remember, this limit extension is to reduce your ratio and increasing expenses will defeat the purpose. Both of these issues are crucial if you are looking to clean up your credit score.

Raise Disputes, if any

Lastly in your effort to clean up your credit score, if you have identified any entries that appear incorrect in your report, send a dispute letter to the bureau and provide them all information and documents to prove your case. This could take some time, but correcting records can help boost your score.

Improving scores can take some time and hence it is advisable to begin early. Even if you are not planning to buy a house right away, it is good to begin patiently working on your scores so that by the time you are ready, your scores are ready too.

 

First Time Home Buyer Basics

download (62)If you have been renting for years, unfortunately you have nothing to show for all the rent money you have given to your landlord. Due to the benefits of homeownership you may be considering purchasing a home. There are a variety of advantages that homeowners enjoy as compared to renters. These advantages include: tax deductions, appreciation, control over their property, and stability. Before buying a house you should consider how home-ownership will affect your employment, family, and financial situation. Once you have weighed the pros and cons of purchasing a house, if you decide to become a homeowner the following steps will help you prepare.

Step One: Get Pre-Approved For a Mortgage

Talk to your family and friends and ask them to refer a mortgage professional that they have had a good experience with. You will need to provide your pay stubs, bank statements, tax returns, and other personal information to your mortgage lender. Often being able to meet face to face with your mortgage loan officer will reduce stress and will help you stay better informed during the loan approval process. Make sure that you apply for a fully underwritten mortgage pre-approval. Many lenders will just pre-qualify individuals for a mortgage. A pre-approval will take longer to complete, but it will eliminate unforeseen issues such as: verified funds, past credit issues, and other potential problems and delays.

Step Two: Look For Your New Home

Once again, you should talk to your family and friends and ask them to refer a licensed real estate professional that they have used in the past. You may spend a lot of time discussing home options and looking at potential houses with your real estate agent, so it is important to be able to rely and trust their opinion and expertise. Knowledgeable real estate agents should be able to listen to your wants and needs in a house; then be able to honestly tell you what you can afford and the areas you can find the most house for your budget.

Step Three: Formal Loan Processing

Prior to signing your purchase agreement and submitting your offer through your real estate agent, you should contact your loan officer and ask for a loan estimate. The loan estimate is a detailed breakdown of your costs to close and monthly payment on the house you are considering purchasing. Ask your lender for a reasonable closing time frame and make sure your real estate agent writes in an appropriate closing date in the purchase agreement. Thorough communication will typically eliminate confusion and frustration during the mortgage process. At this point, time is of the essence, so when your lender asks for additional information, try to provide it as soon as possible. If you are unsure why the additional information is needed, ask for an explanation of why it is required, but provide the information in a timely manner.

Step Four: Closing

Once your loan is approved, you should receive a closing disclosure from your lender or the title company. Usually this disclosure is emailed to you and then must be e-signed before your closing appointment can be set. Lenders are also required to have the closing disclosure signed at least three days prior to the closing papers being signed. Once the closing papers are signed, the loan can officially file at the courthouse, which transfers the house into the borrower(s) name.

Buying A Home As A Newly Married Couple

download (60)While the home buying struggles of unmarried couples are well-known, the process is not straight forward for married couples either. After tying the knot, many newlyweds look forward to buying a home together. But before you start scanning property listings and searching for the perfect bathroom suite, make sure you sit down together and ask each other these house buying questions.

What is your financial history and credit rating?

At the start of a relationship, couples talk all the time, from music to travel and everything in between. However, as a married couple you should have a serious conversation about your finances and credit scores.

While some couples will have already discussed their credit scores, others consider it a taboo topic of discussion. If one person has a credit score that is significantly lower than their partners, it could affect the couple’s chances of securing a mortgage to buy a property, or at a minimum affect the ability to get an appealing interest rate on a loan.

Discussing your credit scores with each other before arranging to meet with a mortgage lender is vital. By knowing your credit rating you have the chance to work on repairing any credit problems before you apply to get a mortgage. If you don’t know your credit score, you can contact your credit card company to see if you can access your score for free, or use an online credit check company.

Where do you want to live in a few years time and in the future?

The life goals you want to achieve will impact the type of property, and the mortgage, that is most suitable for you. If you plan to stay for a long time in a property, then a fixed interest rate 30 year mortgage may be for you, since it ensures that your interest and monthly payments will be consistent throughout the length of your loan.

If, however, you plan on moving again within a reasonably short amount of time, to buy a bigger property for starting a family – then a fixed rate mortgage may not be the most suitable. A better option may be an adjustable rate mortgage that offers a lower rate of interest than a fixed rate mortgage for a preliminary length of time, possibly up to 7 years. After the initial period of time has passed, the interest rate can fluctuate up and down as a result of market indexes.

Will one of you be a stay at home parent?

After tying the knot, you may not want to rush into starting a family, so why the need to have a discussion about kids? Because having children will drastically affect your income as a couple, which is crucial for establishing how much you can afford on a property. A good rule to follow: don’t have mortgage expenses that account for over 30 percent of your take home income.

Remember that you may be making mortgage payments for up to 30 years, so you should not only consider your current income, but your anticipated future income. What happens when/if you have children and one of you decides to leave work to look after the kids at home?

Your family income could be reduced by half. So when you are estimating how large of a mortgage you need, it is best to be cautious. Just because you are eligible for a $1 million loan, it doesn’t mean you should go out and buy a $1 million property.

What happens to the property if your marriage breaks down?

Although you may be a happy, recently married, pair of love birds, you should discuss the potential future conclusion of your marriage, through divorce or death. If either, unfortunately, occurs you will need to know how to separate your assets.

When buying a property as a married couple, you have several home ownership options. Joint tenancy is the most common type of ownership with spouses. Each partner holds an equal share in the property. If one of the couple dies, the deceased’s share of the property is passed on automatically to the surviving spouse.

Tenancy in common is another option, with its transferable interest in the property, which may be a more suitable form of home-ownership. If one person is contributing a larger initial down payment or paying the majority of the mortgage payments, they can protect their investment in the event of divorce.