Fact Gathering should be your initial mission before looking at homes.
First Things First, you are on a fact gathering mission and the first step is to order your credit report. You can contact the credit bureaus direct; Trans Union, Equifax and Experian. They likely will charge you a fee. Or you can order through one of the free web sites like FreeCreditReports.com, credit.com etc. You can find more through google. You want to make sure the report will include your credit score. That number is a huge factor for lenders
Paying cash is King when buying real estate, less hassle and more negotiating power. However, most people are going to buy using financing. For most this will be their largest debt ever. Your credit score determines how much that financing is going to cost you in loan fees and interest base on the interest rate. The higher your credit score, the lower the cost, your rate and therefore your monthly payment.
While you can get financing with a credit score in the 600’s, I recommend waiting until you can get your score above 700. www.LexingtonLaw.com is an excellent source for helping you with credit repair if you are willing to pay someone else. They are a law firm with a credit repair department. Last time I checked when I Googled “credit repair” they are at the top of the results. Reasonable monthly cost.
If you are more a Do It Yourself person you just need to be consistent and persistent in disputing the negative entries in order to get them deleted.
Checking your credit report in the beginning of this process also sometimes reveals errors on your report that then require you to get the credit bureau to correct.
While you can get financing with existing car and student loans and other debts, I recommend getting out of debt first. That means pay all those debts off first. That is part of being Savvy with your finances and the financial well being of your family.
I believe it is Savvy to then save 20% for your down payment. You can finance a home purchase with as little as 3.5% down. (an FHA loan, Federal Housing Authority) If you are a Veteran 0% down. (VA loan, Veterans Administration) However, FHA and VA charges funding fees that are added in on top of the loan. With less than 20% down you will pay more in the form of a “Mortgage Insurance Premium” (MIP), a monthly fee as part of your monthly payment. This is insurance to protect the lender in the event you default on the loan. FHA never drops that fee. A 5% down conventional loan will drop that fee after you have 20% equity.
While some lenders will allow you to finance with a monthly payment of up to 45% of your monthly income, I recommend you don’t go over 33%. Less is better. Be Savvy!
I also recommend that you not buy a new car and finance it especially just prior to financing a home. Best to buy one with cash a couple years old with low mileage. The value of new cars typically drops below the amount most people finance them for as soon as you drive it off the lot. So you are upside down from the beginning. Always financially sound to plan and exercise delayed gratification, save up and pay cash for a good used car. You know what I’m saying is true even though the marketers make it very enticing to buy now and finance. Savvy to drive a cheap car until you can pay cash.
The objective being so you can live a stress free financial life, so that the rest of your life will have a higher level of quality as well. One of the biggest reasons for divorce is financial problems from debt.
If you follow this advice you will be all the better for it.
Next blog I will explain more about types of loans.