Valley Real Estate

Here's 8 Tips To Get You Started

• 1. The family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent. Use this Budget Worksheet Calculator to help you.
   
• 2. Debt reduction. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.
   
• 3. Put a lid on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.
   
• 4. More income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.
   
• 5. Set a plan. Develop a budget to save for a down payment and stick to it. Although it’s possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent down payment.
   
• 6. Start a house fund. Don’t just plan on saving whatever’s left toward a down payment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.
   
• 7. Don't change jobs. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.
   
• 8. Your credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly. (Note: Get only one! If you already have more than two, now, cancel them. Too many credit cards will actually lower your credit score even if you don't owe anything on them.)

5 Ingredients That Dictate Your Credit Score

Is your credit score above 620? It should be to considered desirable when applying for a loan. In fact, many lenders, in the wake of the mortgage melt down of 2007 now require a score of 670 or better!  When you apply, your lender will "rate" or  "score" your credit history. That score ranges between 200 and 850. How high you score will affect your ability to obtain a loan, and determine how much you will pay for that loan.

Your lender will consult three major credit reporting agencies:

• Equifax
• Experian
• TransUnion.

Each of these agencies uses a different algorithm or "recipe" to derive your score, but they all consider a similar range of credit factors. These are the top five factors that will affect your score on all three reports:

1. Payment History - 35%.

Have you paid credit card obligations on time? As much as 35% of your  score is determined by your history of paying your credit accounts. On time is good - but past due citations will kill you in this heavily weighted category. Your most recent history will count far more than the distant past.

2. Total Amount of Debt - 30%.

Do you owe a lot of money to numerous creditors?  If you do, the reporting agencies will take that fact as an indication that you are a bad credit risk and and tend to live beyond your means. The amount of total debt you owe will count toward 30% of your score.

3. Length of Credit History -15%.

A long credit history, especially if you've diligently made payments on time, go a long way to improving your score. 15% of your score is produced on the basis of how long and how well you've used your credit.

4. New Credit - 10%.

Stay clear of new credit if you're considering a mortgage. The reporting agencies consider new credit risky even though you pay promptly. They will look at your very recent history and  base 10% of your credit score on your efforts to obtain lines of credit in the past few months.

5. Types Of Credit - 10%.

The reporting agencies like to see lots of different types of credit — installment loans (car loans), apartment leases, a small* number of credit cards, and a mortgage, for example. Fully 10% of your score will be calculated from the types of credit you've obtained.

*Although it seems contradictory, having a large number of credit cards (more than three) will actually lower your score, even if you owe nothing on them! Reason - you might actually go out and use them, making repayment of your mortgage more difficult.

 

Need to improve your credit score?

Here are 9 ways to get started.

1. Correct any and all errors in your credit report.

   Are you paying for someone else’s poor financial management? Check your credit report for mistakes. A new Federal law allows you to receive a free copy of your credit report once in every 12 month period from each of the three reporting agencies. To get your free annual report, go to www.annualcreditreport.com.

2. Pay off or pay down credit cards.

   Here's the deal. If you can manage it, pay off the entire balance every month - but never, never miss or be late with, at least, the minimum payment. Also, don't transfer debt from one credit card to another - it could lower your score. Cancel all credit cards that you don't use. Having credit available to you on several cards, believe it or not, is considered risky to a mortgage lender (see #6 below).

3. Stay well within the limits of your credit.

   Don’t  max out  any cards. Work hard to bring down the balances on the cards with significant sums of debt first.

4. Patience is a virtue.

   We know it's hard but wait at least 12 months after any credit difficulties to apply for a mortgage. You’re penalized less for old problems than for new ones.

5. Think before you buy.

   You've just been approved for a loan? Congratulations - but don't grab your credit cards and go out and start buying big-ticket items for your new home. Wait until after the loan transaction is closed. Your loan underwriters will run another credit check just before you close. You may lose the loan you thought you had if you use your credit cards to buy all kinds of cool stuff for your new home, and your credit score is now lower as a result of increased debt.

6. New credit is bad.
   

   Having too much available credit can lower your score. Although this seems like a contradiction, your loan underwriters are afraid you might actually go out and use it - running up such high debt that you won't be able to repay your mortgage loan.

   But wait! Don't consolidate cards just to rid yourself of credit cards either. Your credit score will be lowered if you come close to "maxing out" the credit limit of any card. Transferring all your debt to one card may come close to reaching the limit of that card.

7. Take care when shopping for mortgage rates.

   Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Steer clear of finance companies.

   This applies especially to "pay check" loans. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor money management.

9. Take better care of your money.

   Do you know where your money is going? If not - find out fast and take control. Use the form provided here to help you take an inventory of your financial situation and track progress towards your financial goals.