By: Karen Laurence Special to the Boca and Delray newspapers
You have now made the decision to buy a home. What are the things that you must do to begin the process? It is not all financial, such as bank statements, investments, even retirement funds. Your credit report contains the outstanding debts that you have accumulated, how long you have had them, where you lived, names you have used, places you have worked. There are some people who have always been monitoring their credit score and are aware of the Dos and Don’ts of retaining a good score. Then there are others who have trashed their credit or do not have credit at all. How can these people help themselves and put themselves into position to buy their house that they have been dreaming of?
Here are a few tips to maintain and improve your FICO score. You do this by running your credit for free at the 3 major bureaus; Transunion, Experian, and Equifax all have promised one free report a year.
-Check your social security number-make sure it is yours and it is right.
-Pay your bills on time-pay more than the minimum on any credit card balance.
-Get current with missed payments-check out the months you were late (late fees apply.)
-Pay off any collection accounts-you can negotiate the balance. It is better to be paid.
-Don’t open cards you don’t need or buy a big ticket item that has to be paid off monthly.
-Pay down debts to 30 percent of the high balance listed on the card. Do not pay off cards until checking with someone in the know.
-Confirm to see that the birthdate is correct-where you lived, your employment, your name or aliases, and make sure that all of the debts that you are carrying are yours and not someone else’s or a relative with the same name.
Requirements of lenders
Validate your social security number and that all information is correct on the report. There should ideally be 4 credit lines, either major credit cards such as a Visa or Master card, a student loan or car being paid so that a lender can see that you are a worthy citizen and pay your bills on time. This translates to the bank that the risk of you defaulting on your home loan is less. Banks care about risk. Banks care about your credit score, which directly affects the loan program you will qualify for and the rate, as well as the amount of your down payment. You may be paying this loan for several years, maybe 30 years, so you want to make it the best rate and loan terms for a large debt that you will be carrying a long time.
Money for a down payment must be in the account for two months prior to applying for a mortgage. Gifts from relative can be used and that has its own set of qualifications. All large deposits must be explained and sourced so no cash deposits while applying for a loan.
For those who have just come to the United States, having a social security number is not enough. You need credit lines for two years to qualify for a loan. Everything you have done in the past creates a credit profile. If in fact, you do not have these credit lines, non–traditional credit can be used. Higher down payments are usually required.
You will need 12 months of paid bill statements, below are some examples, prior to applying for a loan.
-Rental payments-12 months cancelled checks or auto withdrawn from account
-Gas, electric, water bills, cable-all in your name-no collection accounts or late payments
-If a business owner, self–employed, for at least two years, there are programs that will let you use 12/24 months of bank statements so that you can show a flow of money and in that way qualify for a loan.
Weaker qualifiers are:
Insurance payments, child care bills, retail store accounts and documented 12 months of savings.
Once you have a copy of the credit report, you must start to repair those errors. Most things can be done yourself, but if not or beyond your capabilities, then you may elect to hire a credit repair agency that will aid you. It is a time-consuming task, but is well worth the time.
You have a right to know who has received a copy as you need to give permission to have the credit run. This may take a while, usually six months is a good time frame to figure. Keep in mind, you cannot close a loan if there is a dispute on your credit report.
Look up the three bureaus and go on their websites to obtain your free report and to clear up any outstanding issues. Know your rights. The Fair Credit Reporting Act was passed by the Federal Trade Commission to protect you.
Karen Laurence is a sales associate with The Keyes Company. She is a Technical Real Estate Instructor, Real Estate Agent and Certified Luxury Agent. 516-524-3953.