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(Stereo MC’s pumping in the background) Imagine you’re at a concert; floor seats, great view, excited energy in the crowd. You’re PUMPED. Suddenly, the lights go out, the base kicks in and standing on stage in the spotlight is the headliner: it’s your Credit
Yeah, so, talking about your credit score may not be very sexy but you know what is? SAVING THOUSANDS OF DOLLAHS! Is it getting hot in here?
A lot of people don’t know why our credit score is important, how it affects our lives, how to find out what’s on our credit report and even more important, how to fix the things that are wrong and/or improve it.
Let’s start with the basics: What is Credit? According to Debt.org, it’s defined as, “Credit means receiving something of value now and promising to pay for it later, often with a finance charge added by the lender. American consumers use credit to buy almost everything, including food, clothing, housing and transportation.”
So, what’s a Credit Score? “Your financial health is often expressed by one number — your credit score. Credit scores are an assessment of your credit history and how well you handle money. Lenders use them to determine interest rates, credit limits and more,” Debt.org.
Applying for a credit card? Your credit limit and terms (like the interest rate you’ll be charged on purchases) is based on your credit score. Turning on a utility? Looking for a new apartment? Applying for a loan to buy a new car or a mortgage to buy a new house? All the above will require a credit check for approval.
When it comes to buying a house, what’s the magic number for a credit score? Most lenders will tell you 740 is ideal to get the best interest rate, although a minimum of 640 is usually required to be approved, depending on the loan programs available. The BIGGER the number, the BETTER your interest rate.
How about a debt-to-income ratio? DTIR is all your monthly debt payments divided by your gross monthly income. JT C-W in Charleston, SC, this one is for you! Your debt to income ratio should be no more than 43%, according to Consumerfinance.gov. For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2,000 is 33% of $6,000.)
Moving along, what are the steps to becoming a first-time home buyer? Armina in Meridian, ID, I’m lookin’ at you, girl.
1. Find a qualified real estate agent/Get preapproved. I feel these are interchangeable. A good agent is going to direct you to a lender for a preapproval before showing you any houses. DO NOT LOOK AT HOUSES UNTIL YOU HAVE THE PREAPPROVAL IN YOUR HAND. Want to know what heartbreak truly feels like? Fall in love with the house you HAVE TO HAVE then find out you can’t afford it. Don’t say I didn’t warn you. Armina, I have excellent referrals for an agent and a lender, if you need them. We used both to buy our house in Kuna and rave about their service!
2. Think about your wants and needs. Yes, they are two different things. How big of a house do you need? How many beds and baths? How much property do you want? In what area of town do you want to live in?
3. Check out properties online and in person. Your agent can set up an online search based on your criteria and area you want, then accompany you to see and investigate the properties. WARNING: DO NOT FALL IN LOVE. The market over the last year has been a Seller’s Market and may be very strong again this year. Don’t plan on ‘winning’ the first home you offer to purchase. Many people don’t get the first, second or even third house they try to buy.
4. Prepare the offer (Purchase Agreement or “PA”) and be ready to negotiate. Your agent will help you decide on a price and prepare the paperwork.
5. Get a home inspection. Once your offer has been accepted, you’ll want a home inspection, which is typically paid for by the Buyer. Your agent can be there to ask questions. If you’re purchasing over an acre, we suggest obtaining a survey, too, which may be negotiable on the purchase agreement.
6. Have the home appraised. Your lender will send out an Appraiser to estimate the value of the home. If the home appraises for more than your offer, SWEET! You’ve got built-in equity. If it’s lower, you have room to negotiate on the price or walk away, depending on how the PA is written.
7. Paperwork, paperwork and more paperwork. A title company will research legal documentation and the history of the house to make sure the title is clear (re: it really belongs to the Seller).
8. Closing Day! We always walk the house one more time in the days right before the close. We want to be sure that the house is still in the same condition as when we wrote the PA and that all repairs have been made that were committed, if applicable. Usually the time from the acceptance of the PA to Closing Day is an estimated 30 days, assuming all goes well with the inspections and the appraisal. This may differ in other markets.
When I bought my home with my ex-husband, I felt like a real grownup. We were 23 years old. When I bought my first house on my own after a rough divorce, I felt in control, powerful and secure. When I bought my first home with my fiancé, I felt like life was on the upswing again and I was proud of our pretty little home on the corner lot with the large, beautiful red and yellow tulips in the front yard.
All these feelings, emotions and securities are what made me become a realtor. What is our sense of purpose? Why are we working in this field? We want to be part of something bigger than the job.
When we’re all working together towards a common goal, we create a bond that creates camaraderie. That camaraderie and trust is what brings success. People working together for a common cause. We are inspired by a belief that buying a home is the foundation to a strong financial position. We give our team something to work towards instead of something to work on.
Questions or Comments? Shoot me a text. April 330-802-3781