Home Buying Tips
Tip# 109
The most important step you can take toward buying a home is to get your credit in order. Too few consumers check their credit in time to purchase, and end up with higher interest rates because they didn’t know there was a problem until the lender discovered it.
The Dos of Managing Your Credit
Check your Credit Disclosure and Scores at Annualcreditreport.com or Myfico.com. Do this before you talk to a lender, at lease one month in advance if possible. That will give you time to correct inaccurate information with the credit reporting bureau(s). Credit problems that have to be resolved take time and may impact both how soon you can close on a loan and how much the loan will cost you. That’s why it’s smart to clean up your credit before you talk to a lender.
- Use alternative credit reports and scores to boost your scores. New alternative credit reports and scores based on on-time payments to landlords, utilities, cable companies, and other accounts that aren’t included in the three primary credit bureau files are available through the National Credit Reporting Association and PRBC, a national credit bureau that reports nontraditonal credit information.
- Improve your credit NOW. It’s never too late to start making payments on time, controlling your debt, and saving some cash, but don’t expect your credit scores to improve overnight. Start sending payments early, so your don’t get hit with “overdue” notices that result in late fees.
- Make sure your credit issues were caused by you and not someone else. You may have to supply copies of divorce decrees, loan applications, and other documentation to show that an account you are being cited as delinquent for is not really yours. Remove authorized users such as teenagers if they are causing delinquencies that are pulling your credit scores down.
- Build credit with a few necessities. You’ll need four to six months to build a record, but if you want to establish credit, start with a secure credit card account, a gasoline card, and a small personal loan. These are called unsecured loans. Expect to pay higher interest for an unsecured loan than a loan secured by property such as a house or car. Pay your balances on time. If you have never opened an account, establishing credit is something that will take time because what the lenders look at is your payment history – not the fact that you don’t have any debt. Establish good credit by repaying the loans promptly.
The Don’ts of Managing Your Credit
- Don’t take on new debt. Don’t open new accounts or make major purchases. To buy the most home you can, you’ll need as much cash and credit as you can get. Talk to your agent and lender about which strategies are best for your situation, whether it’s making minimum payments and using cash for a down payment, or paying off debt and rolling the down payment into your mortgage.
- Avoid credit repair companies. Negative entries on your credit reports, if true, can’t be erased. Credit repair companies work by sending letters to credit bureaus that dispute the negative items. Under the law, the credit bureau must respond within 30 days or remove the disputed item from its record. The problem is that the creditor will refile the item so your disputed item doesn’t disappear for long, and can come back just in time to kill your loan. The Federal Trade Commission advises that credit repair clinics “don’t do anything for consumers that consumers cannot do for themselves at little or no cost. Beware of any organization that offers to create a new identity and credit file for you.” Rather than risk wasting time and money, contact consumer credit companies that can advise you, such as the Consumer Credit Counseling Service or the Institute of Consumer Financial Education.
- Don’t pay collection agencies. Pay the creditor directly. While you can’t expect a derogatory entry to be removed from your report, paying it off can’t hurt with your creditor. Don’t be afraid to ask a favor. Tell the creditor you are buying a house and would like them to remove the fact that your payments were late. Some will, some won’t. Be sure to obtain a letter saying that the balance is paid in full. Keep in mind that while one bureau may show that account as paid, you may have to prove it to the other.
- Don’t close long-established credit accounts with good payment history. Closing accounts with long-established credit histories eliminated examples of your good payment history, which is what lenders are looking for.
The National Association of REALTORS and Blanche Evans. Guide To Home Buying. Hoboken, New Jersey. 2007. 81-84.
Tip # 65
Whenever there is a surplus of homes, sellers will work harder to attract buyers by putting their homes in tip-top shape or offering incentives such as owner financing or a large redecorating allowance. As homes become more competitive, buyers realize that their interest is at a premium and they often increase their demands to sellers.
The one certainty that can always be counted on is that one side of the market will never stay on top forever. In fact, it can turn on a dime.
Your agent will run through the numbers with you and show you what the lowest price you can offer is that will still be accepted by the seller. The seller’s motivation, equity position, and goals will have a lot to do with whether they accept or reject your offer.
Some Strategies for Buyer’s Markets:
- Be clear about what you want.
- The more homes there are for sale, the easier it is to get confused. Don’t get derailed by the wrong house at the right price. If it’s not going to meet the needs of your family or your investment goals, it’s just plain wrong.
- Buy at the level you are comfortable.
- Buyer’s markets may last a while. Just because a home is a bargain doesn’t mean you should bite off more than you can chew financially. There should be plenty of homes that will offer you more than you thought you could afford without bankrupting you.
- Buy the best maintained or new properties.
- Because there are more homes on the market, sellers are competing for buyers, which means that they are more likely to put their homes in move-in condition. Unless you want a fixer-upper, let the seller do the work.
- Don’t be afraid to ask for more.
The National Association of REALTORS and Blanche Evans. Guide To Home Buying. Hoboken, New Jersey. 2007. 209-211
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