Check Credit Before Buying a Home

What is a Credit Score? Imagine that a friend asks to borrow money from you.  Assuming you had the money to loan, you might then ask yourself, “Did he pay me back the last time he borrowed money?  Did he pay me back the full amount?  On time?”  When you approach banks and lenders for a loan, they go through a similar analysis, but since they do not know you personally, they use your credit history to determine whether you will be a responsible borrower.  Lenders learn about your credit history by looking at your credit report.

You can get a free Credit Report Card that includes your free credit score right now.  Credit reports are developed by three separate credit agencies. These agencies (Equifax, Experian, and TransUnion) gather information about your credit history, and, using a formula developed by Fair Isaac Corporation (FICO), each assigns you a credit score. You will end up with three slightly different credit scores, each from one of the three agencies. Lenders typically look at your middle credit score (as opposed to the highest or the lowest), and you must provide all three of your credit scores (one from Equifax, one from Experian, and one from TransUnion), when applying for a loan.

Why are Credit Scores so Important When Buying a Home? Your credit score helps determine the rate and conditions you receive on a loan.  If your credit score is high, meaning that your credit history indicates that you have paid your credit card bills on time, have not “maxed out” your credit cards, etc., then lenders believe it is a fairly good bet that you will not have difficulty paying off your loan. They will see you as a low-risk investment and offer you a low rate on your loan with good conditions.  If your score is lower, lenders will think you are a riskier investment, and charge you (by loaning you money at a higher interest rate, often including hidden charges) to take on the perceived risk.

How do Credit Scores Affect You When Applying for a Loan? Most lenders have a baseline credit score by which they largely make their decision to approve or deny mortgage applicants. The maximum credit score is 850 (though a score of 850 is rare, indeed. Only about 10% of applicants have a score over 800). Any score in the 700’s or above is excellent and will get you a loan with the lowest interest rate. When you get into the 600’s it starts getting dicey.  So you can see the importance of keeping a good score.  It used to be okay to miss a credit card payment deadline. You might pay a $15 late fee. But if you do this on a regular basis, it can savage your score and cost you many times that amount when you want to buy or refinance a home.  That is the bad news.  The good news is your credit score is not fixed in stone.  If you have bad credit scores, there are ways to improve your credit health.  If you find your scores are lower than you expected, you will need to engage in credit rehab.  From a financial standpoint, it is almost always better to take the time to improve your credit health, and make yourself eligible for a better interest rate, than it is to apply for a loan with a credit score that will only make you eligible for a subprime loan.

Find Out Where You Stand. You can check your credit score each month using Credit.com’s free Credit Report Card.  This completely free tool will break down your credit score into sections and give you a grade for each.  You will see, for example, how your payment history, debt and other factors affect your score, and you will get recommendations for steps you may want to consider to address problems. In addition, you will also find credit offers from lenders who may be willing to offer you credit.  Checking your own credit reports and scores does not affect your credit score in any way. 

Homebuyer Do’s and Don’ts When Getting a Loan

  • DO continue to make payments on time for current mortgages, cars, credit cards, etc..
  • DO paper trail, document, and explain any large or unusual deposits or withdrawals into accounts such as checking, savings, stock, etc.
  • DO keep pay stubs, bank statements, tax forms, etc., in case the lender needs to update the documentation prior to closing.
  • DO ask questions if something is unclear about the loan program, fees, and/or loan conditions.
  • DO let the loan officer or mortgage broker know if anything changes, for example, your employment, income, assets, credit history, etc.
  • DO document that the earnest money deposit has cleared your account; obtain a copy of the cancelled check and/or statement that reflects the funds have cleared.
  • DO lock-in the interest rate.  These are ordinarily thirty to sixty days and definitely worth it if rates are trending upward.
  • DO have homeowner’s insurance agent information available and provide updated documentation (pay stubs, bank statements, etc.) in a timely manner so as not to delay the closing.
  • DO NOT increase credit card balances and/or loan balances.
  • DO NOT apply for additional or new credit or put balances on a paid credit card.
  • DO NOT ignore late payment and/or collection notices that are received during the loan process.
  • DO NOT purchase anything that is “same as cash”, as it will show on the credit report as a new debt.
  • DO NOT buy furniture, a new car or appliances on credit until after closing.  This is the most common “don’t” action that has occurred during my sales.
  • DO NOT lend money to family members or friends if the money is needed for closing.
  • DO NOT store money at home; place it in a bank account so it can be documented as savings throughout the loan process and can qualify as assets on hand.
  • DO NOT have overdrafts on a checking account.
  • DO NOT quit or change jobs during the loan process.

 

 

The Mortgage Challenge

MortgageChallenge

 

De-clutter Your Home

Consider this list of creative ways to de-clutter your home:

1. Give yourself 5 solid minutes: Put at least twenty-five items away in five minutes.  If the item does not have a home, or is no longer needed, place it in a donation box.  2. Give away one item each day. This is manageable de-cluttering, simply done one item at a time.  3.  Fill one trash bag: This is an easy way to process excess papers and packaging that is no longer necessary.  When the bag is full, you are done with that task.   4.  Try the Closet Hanger Experiment: To identify wardrobe pieces to clear out, hang all your clothes with the hangers in the reverse direction.  After you wear an item, return it to the closet with the hanger facing the correct direction.  After six months, you will have a clear picture of which clothes you can easily discard.   5.  Take the 12-12-12 Challenge: A simple task of locating twelve items to throw away, twelve items to donate, and twelve items to be returned to their proper home can be a really fun and exciting way to quickly organize thirty-six things in your house. You can select a smaller number for children to process.  6. The Four-Box Method: As you set out to de-clutter an area, set up four boxes:  trash, give away, keep, and relocate.  Each item in every room is placed into one of the four categories.  No item is passed over; each is considered individually.  Some projects may take an hour and others may take days or weeks but the technique and principles remain the same.  No matter what you choose to help you get started – whether it be one of these six or one of countless others – the goal is to take your first step with excitement behind it.  There is a beautiful world of freedom hiding behind that clutter.

Taking Care of an Empty House

Often we have listings of homes for sale or lease that are vacant for a few months.  Sitting vacant is probably one of the worst things that can happen to a house.  I make sure I or the owner visit empty listings at least once a week.  Here are some things to be sure to check.

Run the water: Every time I show the home or am checking the home, I run the water in the bathrooms, kitchen, laundry room, etc. and flush all the toilets.  If this is not done sewer gases will accumulate in the drains and when someone occupies the house and starts using the shower or toilet, a very foul odor will permeate throughout the house.

Run the garbage disposal: Some garbage disposals tend to freeze up when not used; run the disposal when you turn on the kitchen faucet.

Toilet lids: Another thing to be aware of is that if the lids on the toilets are closed, mildew accumulates in the toilet bowls and is unsightly for a prospective buyer or lessee.  Put the seats down but leave the lids up is my advice.

Air out the house: Open windows and doors periodically to get rid of that vacant house smell.

Check the smoke detectors: If you hear a chirping noise it is probably one of the smoke detectors needing new batteries; this is an aggravation for people viewing the house as well as being a possible breach of safety.

Be sure to lock all doors: One of my worst fears is that someone will move into a vacant home; it can take years to get them out.  Plus, think of how scary it would be to enter a house and find someone there.

Check the yard: Sometimes, the sprinklers get out of whack and some parts of the yard are not getting any water.  This leaves dead grass areas that are unsightly.

Check the gutters: Take a look at the rain gutters to make sure they are not full of leaves and other debris.  If the gutters are full and there is a rain storm, water will flow over to the edge of the roof and can cause a lot of damage.

Check around the front door: Remove any free newspapers, magazines or door hangers that have been delivered since your last visit.

Check the lights: Most showings are during the day, but some are after dark, and it can be pretty creepy for the agents and their clients if there are some lights that do not operate.  Usually, a light bulb just needs replacing.

 

 

Taking care of your empty house will likely bring a higher price in a shorter time.

 

Home Is Never Far Away

The majority of renters who plan to buy a home soon don’t expect to move far when they do. More than half will stay in the same county, if not the same neighborhood.