10 Step Guide to Buying Your Home

If you follow my social media pages (Facebook & Twitter), then you may have seen me tweet about the ten steps to buying your home from Realtor.com. Below you can find each step that you will need when purchasing your first home.

You can bookmark this page and research each step as you make your transition through the housing process.

Step 1: Are You Ready to Buy a Home
It is best to do a mental and financial check to make sure that you are indeed truly ready to be a homeowner.

Step 2: Hire A Realtor
It is always best to hire someone who has your best interest put forth. A buyer’s agent will help you through the process. When I work with buyers, I make sure they understand how the process works, deliver them all options, and make them extra confident about purchasing their first home. You should always have someone to represent you in the home buying process even if you decide to build your home.

Step 3: Get A Mortgage Pre-Approval
Before any Realtor takes you to view homes, they will want to know that you are pre-approved. Without having a pre-approval you are basically dreaming on a wish. It is best to know what you can afford based on your finances. I would suggest you go a step forward and see how much you can afford based on your net income.

Ex: Gross Monthly Income – $3000
      Net Income (Take Home Pay) – $2,550
     
      Gross Annual Income – $36,000
      Net Annual Income – $30,600
      Home Price You Should Buy – $92,000

The lender will only take in account to the debt being reported on your credit report. If it isn’t reported on your credit report (electricity, cell phone, gas, car maintenance and insurance, etc), then it won’t be calculated in what your monthly bills. Take that into play when purchasing your home. A rule of thumb is that your mortgage shouldn’t be more than 30% of your income. Based on this scenario, that range would be between $765- $900.

Step 4: Look at Homes
Now that the financial piece has been squared away, you are ready to search for homes that meet your price range.

Step 5: Choose Your Home
Base your home search on 3-5 things that you must have. Please take into consideration that if you are looking for an open concept, that can easily be adjusted if the wall can be knocked out. Don’t let small cosmetic things like ugly carpet, wallpaper, or paint colors stop you from purchasing a home. Cosmetic things can be changed in as little time as a weekend and sweat equity.

Step 6: Make An Offer
This is why you hired a Realtor. Your Realtor will help you determine the price to set your offer at and what conditions to ask for.

Step 7: Stay Mortgage Approved
Once you have decided on your home to buy and your offer has been accepted, it is time to do due diligence. Just because you have a pre-approval, DOES NOT mean you have been approved on a home loan. The pre-approval is just to say that a lender has checked your information and you can purchase a home in the select price range. In order to stay mortgage approved, you have to keep your debt to income ratio in the same position as you did when getting pre-approved. During this time of the process, don’t go buy a new car, new appliances, new furniture, or default on a credit card (yes this list can go on because this has happened before). Wait to buy these items when you have signed the closing documents and have the keys to the home in your hand.

Step 8: Protect Yourself…Get Insurance
Just as you need car insurance as a requirement to own and operate a car, you will need homeowner’s insurance to own your home too. This is no getting out of this one. I would suggest you start with your insurance carrier that you have car insurance with or even renter’s insurance. Some insurance companies offer discounts when you setup a bundle with them. (TIP: If you are apart of any organizations, see if your insurance company offers discounts with them. I was able to use my sorority to get a discount with my insurance company).

Step 9: You’ve Made It to Closing Day
You have finally made it to the closing day. You have exhausted yourself to find the perfect home and now it is almost time to achieve that reality.

Step 10: I’m A Homeowner
You are officially a part of the homeowner club. You have to make sure that you maintain your home. If you see a neighbor whose yard is decreasing your home value, be neighborly and charge a fee to keep it cut for them. See I’ve helped you create a small hustle in the neighborhood. You can also volunteer to do it as well.

These ten steps will help you prepare for purchasing your first home. If you or someone you know is ready to get the train rolling on purchasing your home, contact me today.

Rebuilding Your Credit Part 2

Thanks for coming back for part two of the rebuilding your credit discussion. Part one was an introduction to rebuilding your credit. Part two will help you center your attention on what is important to maximize your credit results. Now that you have dispute any inaccuracies, it is time to focus on what is correct in your credit report. I know you were probably hoping that old cell phone bill wouldn’t show up but it did and it is yours so now is the time that you deal with it. From a mortgage lender standpoint, you will need to handle any judgments that you may have. Judgments can be found in the “public record” section of the credit report. You may also find child support payments here as well if you are ordered by a court to pay child support. If that is the case, don’t worry but this section. Judgments range from any creditor that sued you (and won) for an unpaid debt. For some people they didn’t know they were sued or that the creditor won because they probably never opened their mail. You see why that is important? You could have settled, negotiated, or set up payment plans before things went this way but at this point that is neither here or there. Your judgment will need to be paid before moving on to any other step in this course. At this point, if you are saving money that is your negotiating point for that creditor. All creditors’ contact information are listed on the credit report. Contact the creditor who won the judgment and negotiate. In the terms of negotiation, money today is better than money tomorrow. Always have a stopping point. If the creditor isn’t willing to work with  your stopping point, hang up and move on to the next creditor. {NOTE: Don’t negotiate if you don’t have any funds}. Just because the creditor didn’t budge that day, call the next day. You will probably get a new person the next day who is ready to talk business? You have to have a game plan. How much you plan to pay or all of it (of course all of it makes it easier right? Start negotiating before you agree to pay all though)? This will determine your stopping point. Once this is paid, request a receipt and then send the receipt to the credit bureaus to have the judgment either removed or updated. Please do not rely on the creditor to do this for you. Remember the inaccuracies? 
Now the same scenario that you used in the judgment will be applied for any other debt. You can ask and please do ask for a deletion for payment but if they refuse, don’t worry because negative debt has a time period on your credit report. Here is an excerpt from Equifax about negative information: 
Credit Accounts
  • Accounts paid as agreed generally remain on your credit file for up to ten years from the date of last activity (DLA).
  • Accounts not paid as agreed generally remain on your credit file for seven years from the date the account first became past due, leading to the current not-paid status.
  • Late-payment history generally remains on your credit file for seven years. It’s important to note that accounts with current statuses, such as R1 (revolving debt) and I1 (installment debt), that reflect previously late payment history will remain on the credit file for up to ten years from the date of the last activity-only the late payment history is removed after seven years.
Collection Accounts
  • Collection accounts generally remain on your credit file for seven years from the date the account first became past due, leading to the account’s placement with a collection agency.
Public Records
  • Judgments generally remain on your credit file for seven years from the date filed, whether satisfied (paid) or not.
  • Paid tax liens generally remain on your credit file for seven years from the date released (paid).
  • Unpaid tax liens generally remain on your credit file indefinitely.
Bankruptcy
  • A bankruptcy under chapter 7 or 11 or a non-discharged or dismissed chapter 13 bankruptcy generally remains on your credit file for ten years from the date filed.
  • A discharged chapter 13 bankruptcy generally remains on your credit file for seven years from the date filed.
Inquiries
  • Inquiries are a record of companies and others who obtained a copy of your Equifax credit file. The Fair Credit Reporting Act (FCRA) requires that Equifax disclose to you who requested copies of your credit file. Depending on the reason your credit file was accessed, credit reporting agencies generally retain these for one to two years.
  • Some types of inquiries you might see on your credit report are not reported to others or used in credit score calculations. Promotional inquiries, in which your name and address were provided to a person who made you a firm offer of credit or insurance, such as a pre-approved credit card offer, generally remains on your credit file for twelve months and does not affect your credit score. An account monitoring or account review inquiries happen when one of your creditors performs a periodic review of your credit file in connection with reviewing your account. These inquiries generally remain on your credit file for twelve months and do not affect your credit score. 
Which creditor do you focus on? I say start with the creditors that were placed in collection within the previous two years. That is two years from today. So September 2012 to today. Any debt from the previous 24 months is what is affecting your score the most at this point. Yes any debt before this timeframe is affecting your score but not as much as the previous 24 months. From there, you can focus on the Dave Ramsey but on old debt instead of current debt (I will get to current debt but let’s focus on rebuilding credit). List the debts that are in collection within the previous 24 months in order from least to greatest. From here, you will follow the same steps you did in the negotiation with the judgment. This is not to say you won’t have to pay any of those other collections but the focus is to help rebuild your credit and develop savings. The tools here is to create a habit so that you are prepared for these times if it happens again. 
On to the Tips
Next, look at your positive credit. If you have negative debt but no positive, you need some positive debt to offset the negative. If you have no credit at all, you can have nontraditional credit applied to your report like rent payments, cell phone payments, utility payments. You will need to ask those providers if they will report your payments to the credit bureaus. Back to the positive credit, if you don’t have any and need some to offset the negatives here are some suggestions:
1. Credit Cards – yes we are rebuilding your credit so why get in more debt? Blame it on America. In other to have a credit score, you will need some form of credit. Sorry I didn’t make the rules. I hate this too. You will need either an unsecured credit card (typical credit card) or a secured credit card (you front the money on this card). Credit card are equivalent to easy courses in college. Just how those easy courses are GPA boosters. Credit cards are credit score boosters. Now here is the tip to improving your score and beating the game. Find a bill that you pay ON TIME ALL THE TIME. Use your credit card to pay that debt and set it up as an automatic payment through that creditor. Then when it is time to pay your credit card bill you will pay the majority of the bill with the exception of $5-10. The key here is to show that you know how to manage debt and that you leave low balances on your credit cards. Remember in part one I told you that payment history and balances owed were key factors in determining your score. Look at my example below:
Cell Phone Bill: $90
Credit Card Limit: $500
Setup automatic payments through your cell phone carrier to make the payment on your credit card. The credit card pays the cell phone bill. You turn around and pay $80-$85 on the credit card. In this situation you need to know the three following dates: date the creditor sends the information to the bureaus, date payment is due, and date that interest is charged. You would want the information reported to the bureau to show some type of balance. Usually after interest has been charged, that is what will be reported to the credit bureaus. After that date, go ahead and pay the whole thing off. Then start the process over the next month. 
It is important to keep credit cards available balance to credit card limit between 30 to 50 percent. So in this example, a credit card that has a $500 limit, you shouldn’t spend no more than $150-$250. For safe practices, let’s stick to 30%. Now if your cell phone bill puts you above the 30% threshold, then select a smaller bill or get gas with the card once a month. If you get into a bind, please take this card off automatic payments. The purpose of credit cards is to boost your credit and show that you can be responsible. 
2. Secured loans 
The next tip is to do a secured loan program through a bank or credit union. You won’t find many banks or credit unions that do this. This type of loan is called a credit builder loan. In Dallas/Fort Worth, there are two credit unions that do this and they are ResourceOne Credit Union and Neighborhood Credit Union. The only initial cost to you is to become a member of the credit union which could be as low as $25. This program IS a forced savings. If you don’t live in the Dallas/Fort Worth area, contact your local credit union or bank to see if they have a similar program. For this situation, the minimum loan would be $500. The thing for this loan is that it reports to all three credit bureaus as a normal loan. The difference is that $500 isn’t given to you. You have to work for the $500 by *coughs* saving it. Each month the credit union will require that you make a certain payment to the loan each month. The $500 will be placed as a hold in your savings account. Once you have satisfied (“saved”) the amount of the loan, the $500 will then be released in your savings account. This is a easier way to pay yourself first because now you are contractually obligated to do so. 
As you work on rebuilding your credit, you will pay off negative debts and increase your score. From pulling yourself out of credit challenges, you can work on paying down any debt. You should develop a habit of savings and paying down debt. Once you have the collection issues resolved, you can fully complete the Dave Ramsey structure through the debt snowball method. With the credit cards that you obtained from building your credit, you won’t have much to pay off. The key here is to rebuild your credit to obtain your financial goals whether they are short term or long term. 
If you live in the Dallas/Fort Worth area, here are some counseling agencies that can help you in your particular situation for FREE:
These are excellent resources to get you on the track to financial freedom whether that freedom will help you become debt free, a homeowner, or spare you the freedom to travel. 

Rebuilding Your Credit…Part 1

One of the biggest challenges for potential homeowners is their credit score. I work as a part time Housing Counselor at a local nonprofit helping low to moderate income families become homeowners. A question that I am frequently asked is “what credit score do I need to purchase a home?” The answer would be whatever the lender thinks is beneficial. I say this because each lender is different and have their own underwriting criteria. I personally know lenders that will qualify you for a mortgage at 580, 620, or 640 by the least. Of course the higher the score, the lower the interest rate but as low as rates are today, you can still can a favorable rate at 580.

In order to rebuild your credit you will need the following things: a spending plan and your credit report. Notice how I did not say budget. In my counseling sessions budgeting is a forbidden word. It seems like someone is restricting you and makes you feel as if you don’t live. Let’s break away from the conservative word of budgeting and instead let’s develop a spending plan. A spending plan breaks down where you spend your money each month. Now in order to rebuild or build your credit you will have to know where you are financially. With your spending plan, you want to distinguish your housing expenses, debt expenses, savings, and any “play” money. Once you designate a place to put your money, then you will have a spending plan. Every dollar needs to a have place in order to determine a spending plan.

After you realize where you are financially, you want to see if you have any savings. Savings is going to be a key on whether you can pay down debt (if you have any). I recommend that before you pay anyone, you pay yourself. You should try to take at least 10% of your net income (the amount of your paycheck that you take home) and put it in your savings. I know you’re thinking, “Andrea, 10% is a lot for me to take out from each paycheck when I barely make any money.” If 10% is too much, lower to 5% or a dollar amount that you makes you comfortable. The key to this is develop a habit. Lenders like a habit like this. I say 10% because look at it like the example below:

Net Income: $2000
10% Savings: $200
Savings for a year: $2400

See how you could easily save thousands in one year with the 10% gesture. That doesn’t seem as bad when it is put like that huh? You can even suggest your payroll deduct your 10% so that you don’t see it anyway.

Credit Report

This may be another topic all by itself but for this blog post I wanted to make it short and simple. To be honest, in order to rebuild your credit, it is short and simple. Let’s start with some basic guidelines.

1. You are allowed one free credit report a year. Click this link to receive your credit report from the three major credit bureaus: Annual Credit Report. I’ve been faithfully doing this since I was a freshman in college. There was a seminar that was given about checking your credit report. I don’t recall if they talked about credit because this is all I remembered from the seminar. Please keep in mind that I was 17 and a freshman at LSU. I had partying and football games on my brain (nevermind that this was the summer either…I was fresh off the sand’s of mama’s given curfew)

2. If you have collectors calling you now, answer. When you don’t answer, you are only diffusing the problem. Some collectors can and will sue you for unpaid debt but you must know your state’s statute of limitations. We will discuss this later (just by stating this I know the credit report will be another post).Tell them your situation and see what options the may have for you. ONLY commit to a payment plan with a collector if the collection is still with the original creditor. If not, ask them to cease phone calls and to contact you through mail only. You will always want things in writing. This is the proof you will need for any disputes.

3. I always get potential housing counseling clients or real estate clients saying that my credit score is this and when the lender pulls it is lower than originally expected. This is because the free scores that you find online are built on a Vantage score. In easier terms, the big boys (TransUnion, Equifax, and Experian) decided they didn’t want to pay FICO the big bucks for numbers so they created their own scoring system.Mortgage lenders look for your FICO score. Credit scoring varies based on who the lender is. Mortgage lenders have different scoring than car lenders.  So the score given to you at the car lot is probably much different than what is given for a mortgage. For mortgage purposes, you will need your FICO score.

Now to the meat of the report. Most people are concerned with the credit score. As of right now, if you are focused on a score, please STOP. I repeat STOP. When you are rebuilding your credit, the score does not matter. You’re probably thinking “Andrea, you just told me that I need a certain score to get my house.” My answer to that is you do need a certain score but when you are rebuilding your credit it isn’t your score that is important but what’s in your credit report. Your credit report determines your score. Once you start working on rebuilding your credit, your score will rise. It is kind of like the saying, “if you build, they will come.” Remember that in your course of working on your credit. “If you build your credit, that 700 or 800 will come.”

A sample credit report looks similar to this:

Your credit report will list your address. If it does not list your current address, you need to have it updated. The credit report lists positive credit, negative credit (collections), judgments, and inquiries. In all of these things listed the following things will be given with each creditor: date debt was opened, date of last activity (this is always the date of your last payment), account number, if the payment has been late and for how long, and which credit bureau has the debt. If any of this information is incorrect, you need to dispute. Most credit reports are filled with incorrect data. If you don’t check your credit report, you won’t ever know this. Positive credit last on your credit report indefinitely. Your FICO credit scoring is based on this: 15% payment history (Good debt from 2004 is amazing…that is 10 years of on time payments on your credit report), 30% amounts owed (balances are low, you can manage debt), 35% payment history (on-time payments and even the late ones in collections), 10% new credit (this is that inquiry that you received from New York and Company because you wanted 15% off on your purchase…yes that just dinged your credit score for 15% off), and 10% credits used (mixes of credit. A good mix would be a few credit cards, an installment loan, and a mortgage). The key to the credit game is all about how you manage credit. You can have 100 credit cards and have a 750 credit score. It is all about how you manage credit. Now if you have any information in this report that is inaccurate, you need to dispute it. Not all bureaus carry the same debt. Creditors may report to one, two, or all three. You can dispute your inaccuracies to the credit bureaus here: Transunion, Equifax, and Experian. Now if there is a debt that you paid off and it still shows that you owe it, you will need receipts to prove it. You can dispute it at the credit bureau level and they will contact the creditor but evidence is important in these situations. These are the first steps to rebuilding your credit. Stay tuned for part 2 where I will discuss the steps to take after you take care of inaccuracies. 

Healthy Habits for Homeownership

As a potential homeowner, what do you think a healthy habit for homeownership would be? If you are looking at this picture above then you may have already guessed it: SAVINGS!!! As a potential homeowner (or even current homeowner), savings is a healthy habit for homeownership. 

As discovered in my article, “Millenials and Real Estate” I briefly mentioned the numbers or resources to become a homeowner. Most millenials or people in general don’t know how much they need to prepare to be a homeowner. My first initial thought would be to SAVE. We’ve all heard of that word. It may be hard to do because we think of all the debt that we have. I can’t save because of this, that, and the other. Let’s rephrase that and think of why you SHOULD be saving. You may want to purchase a home soon, you need emergency funds, you may need/want to purchase a car soon. Saving is a big key to life and now is the time to start saving. I have two ways to save for a big purchase such as a home.

The first start to saving is the 10% rule. This 10% rule is to save 10% of your net income each paycheck. Let’s do the math scenario here. Let’s say you just signed a new lease but you know this will be the last year that you rent. That means you have a year to save. In this scenario, you have a $45,000 salary and after taxes your salary is $38,250. You will then have a net income of $3187. In simplest terms, you should save at least $318 a month. In a year’s time you would have $3,825 saved towards the purchase of a new home. For a $100,000 house, a down payment could be as small as $3,500. You have easily saved your down payment.

The second option could be to save your mortgage payment. For instance we could say that your rent is $900 but you could afford a $1200 in a mortgage payment. You set aside the extra $300 a month in the difference. The difference in savings is $3,600 and you have saved yourself a down payment and have gotten used to paying $1200 in a mortgage in the process.

Some people believe that just because you have purchased a home that the need to save is now out the window. WRONG. Remember as a homeowner, you are now in charge of maintaining your home therefore you should continue to save. By developing a savings habit now, you will continue to have that habit when you are a homeowner. It is important to develop the habit of savings as you may the leap into homeownership.

Did you know there are other savings with homeownership? 

As a homeowner, you get extra benefits that help you in your savings venture and it is called EQUITY!!!! By purchasing a home, you are creating a nest egg Let’s display the difference of savings while renting and saving while buying?

There are numerous benefits to homeownership that you may be missing out. Wouldn’t you like to see that you are saving money as you maintain your home as well? Imagine how much you could save in five years if you had a forced savings in a mortgage and the savings you commit to in your bank account. Contact me today and together, let’s figure out your savings options with homeownership!