Are you financially ready to buy a home? Your credit

Are you financially ready to buy a home? Your Credit

The first and most crucial step to buying a home is to get your finances in order. This is very important because it will affect you for many years.

Most home buyers op for a 30 year fixed rate mortgage. What this means is that you will be paying the same mortgage payment for 30 years. The amount you pay is calculated using the home price but also the interest rate you lock in. It’s to you advantage to lock in the very lowest rate.

The difference between a 3% interest rate and a 5% interest rate on a $150,000 loan is approximately $170 extra a month; that is $2,000 extra a year on just interest! Consider this money lost because it does not go towards the price of the home.

See it for yourself, enter your own numbers in this mortgage calculator

Before you go to the bank to get pre-approved, you need to check your credit history and credit score. These two are different. Your credit history is just that, a list of places where you have established credit, your lines of credit, current balance and payment history.

Your credit score or FICO score is calculated from several different pieces of credit data in your credit report. This data is grouped into five categories as outlined below. The percentage in the chart reflects how important each of the categories is in determining how your FICO score is calculated.

Your FICO score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing a good track record of making payments on time will raise your score.

For more information: http://www.myfico.com/crediteducation/whatsinyourscore.aspx

All Creditors establish their own guidelines and break points for doling out credit. But here’s what credit scores can mean for your personal finances:

·      300-580: You’ll be denied credit or will only be approved for the very highest, most costly interest rates.

·      581-650: You may qualify for credit at high interest rates.

·      651-710: You’ll qualify for credit at moderate interest rates.

·      711-750: You’ll qualify for credit at competitive interest rates.

·      751 and up: You’ll get the most competitive, lowest interest rates on the market.

There are no quick fixes to improving your credit scores but there are things that you can do to better your score in a reasonable amount of time.

        1. Check your credit report - You get one free credit report from each agency yearly annualcreditreport.com. You don’t have to get all three at one time. Divide the year up and check your credit for free three times a year. If you find mistakes, request for them to be corrected in WRITING. Mail the request. Do not do this by phone. Keep a record of your requests

•      Delinquencies will remain on your record for 7 years
•      Public records (such as bankruptcies) will remain on your record for 7 years. Some bankruptcies will remain on your record for 10 years and unpaid tax liens for 15 years
•        Inquires remain on your record for 2 years   
• 
  

2. Pay your bills on time (or before) – Set up payment reminder for upcoming due dates and if possible pay before the actual due date.  Credit card companies don’t necessarily report balances after the due date. They might do so before. It might be to your advantage to pay a few days before so that a lower balance is reported. You can call your credit card company and ask them when they report your balance; then make sure to pay before this date.

3. Reduce the amount of debt you owe – I’ve heard that most credit card companies get nervous once you carry a debt ratio higher than 20% of your allowed balance. Keep the balance to an amount below 20%

4. Missed Payments – If you have missed a payment, bring the account current ASAP and stay current. Older credit problems count for less than newer credit issues, so the longer you stay current the better your score.

5. Collections – Paying off a debt to a collection agency will not stop the debt from being recorded on your record. It will stay on your record for 7 years.

6. Type of credit – Avoid having credit cards from retail and department stores such as Walmart, Target, TJMaxx, Marshalls, Home goods, Stein Mart etc. These are usually not look at in good light. They prefer to see major credit providers: Visa, MasterCard, Discover, etc.

7. Moving debt – Pay off debt instead of moving it around. Remember to keep balances to 20% or less. Moving all your balances to one credit card and then cancelling all the rest will not better your score. It can make is worse.

8. Unused credit cards – Don’t close unused credit card accounts. Keep them active as a short-term strategy to better your score. Remember that one of the things they look at is how much credit you have in relation to debt.

9. New credit cards – Don’t open a bunch of new credit card just to better your score. This will actually make it worse.

10. Length of credit – Try to keep lines of credit for several years. They want to see that you can maintain an account for several years

11. Rate shopping – When shopping for a loan you can shop for the best rates but make sure you do it within a focused period of time.  They can distinguish between a search for a single loan and shopping for new credit

12. Re-establishing or establishing new credit – If you have had credit issues or have no credit, open should open a new account and pay the balance off on time. Sometimes you will have to establish credit using a secured credit card. This is a credit card where you will have to deposit a set amount of funds into an account as a guarantee.

To buy a copy of your report or to contact:

·       Equifax: 1-800-685-1111; equifax.com

·       Experian: 1-888-397-3742; experian.com

·       TransUnion: 1-800-916-8800; transunion.com

The Federal Trade Commission’s “Building a Better Credit Report” (www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm) has information on correcting errors in your report, tips on dealing with debt and avoiding scams—and more.

I can't stress enough how very important this step is to purchasing a home. Work on this now and you will be better off in the future.

Feel free to contact me if you should have any questions. Please note: I am not a credit expert. No one knows exactly how FICO scores are calculated. 

If you have any questions or if you would like assistance in buying, selling or renting give me a call. I'm happy to help.

Ali Palacios, ABR, MCNE, TAHS
Realtor
Today's Home Realty
ali.palacios@todayshomerealty.com
Mobile - 832-418-0670
Fax - 832-201-7492
www.todayshomerealty.com
www.ilovehappyclients.com

9119 Hwy 6 S #230-116, Missouri City, TX 77459


Home buyers and sellers beware: http://homes-sale-richmond-texas.blogspot.com/2016/02/home-buyers-and-seller-beware-wire.html
Rental fraud alert: http://homes-sale-richmond-texas.blogspot.com/2016/02/rental-fraud-alert-texas-luz-astacio.html

About me: http://www.ilovehappyclients.com

Professional Memberships:

• Houston Association of Realtors®

• Texas Association of Realtors®

• National Association of Realtors®

• Accredited Buyer’s Representative – ABR

• Master Certified Negotiation Expert – MCNE

• Accredited Staging Professional – ASP®

• Texas Affordable Housing Specialist – TAHS

• Women’s Council of Realtors®

• National Association of Gay & Lesbian Real Estate

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