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Your credit score is now the most important factor in determining how much house you can buy, so if you are in the market for a new home, you need to understand how it affects you.
In order to make it easy for mortgage companies to determine the risk of lending to you, they are using a system called credit scoring (also called "FICO" scores).
When lenders look at your credit report, they can instantly see how much debt you have, how reliable you are with bill payments, and if you've had any bankruptcies within the last several years.
With your credit report, lenders get a "credit score" which takes all of this information and boils it down to a number between 300 and 900. The higher the number, the less of a credit risk you are seen to be, and this is how lenders decide which types of loans you will be eligible for.
As with all new things, there is controversy over credit scores.
To be elligible for some types of loans, you require a minimum credit score without any exceptions. And credit scores fluctuate over time. In fact, the mere act of applying for credit can lower your credit score.
To maximize your credit score, you should avoid applying for any new credit cards or consumer loans.
Don't go to the discount store and take them up on the "No interest, no payments for one year" offer -- and avoid financing a car!
After you buy your home and get your mortgage you can do all of these things, but before then it's a bad idea. Buying things on credit hurts your credit score, and leaves less money for your downpayment.
Lenders also look at this figure to decide how much money they will lend you, and how much interest they will charge you on the loan.
That's why it's best to wait until after you've bought your home to go shopping for furniture and appliances. There is also another reason to wait.
Once you've bought your home, you can get a loan for up to 100% of your home's value to buy anything you want.
If you learn to play by the rules of the lenders' game, you can get the best credit score possible, which improves the odds that you can get the home of your dreams.
There are a few easy ways to make extra principal payments that can save you a ton of money in interest expenses and get you mortgage-free sooner than you thought possible. Here are a few simple strategies you can use:
The results of this simple strategy can save you a fortune and drastically reduce the length of your mortgage.
As an example, if your monthly mortgage payments were $734 dollars a month, but you rounded it up to $800 per month, you would save more than $48,000 in interest payments, and reduce the length of your mortgage by 7.5 years!
This is an easy way to save money and shorten your mortgage. For example, if you have a $100,000 mortgage, and you have a $1000 tax refund this year, you can apply that refund to your mortgage. Over time, this will save you more than $8600 and shave 1 year and 1 month off your mortgage! That's another amazing result from a simple strategy.
If you can afford it, you are far better off getting a 15-year mortgage instead of 30. It won't cost you much more, and the interest savings are truly incredible.
If you have a mortgage of $100,000 at 8% interest over 15 years, your monthly payment would be about $200 more, but you'd end up saving $92,083 in interest over the life of your mortgage!
Using these strategies is the easiest way to reduce your interest expenses and shorten your mortgage period.
Many people think that serious defects in a home are easy to spot, but the truth is, often the most serious and costly problems can only be detected upon very close inspection. When you are considering buying a home, look for the following six telltale signs of serious problems.
Leaks are the most common problem with roofs, and are tough to detect from outside. However, from inside an attic, you can often see water marks where there is a leak.
Make sure you are confident that both water systems: the one that brings fresh water in and the one that takes sewage out are functioning well before signing on the dotted line.
Before you agree to buy you should make sure that you can run all of the appliances you want to and even power tools at the same time without having a power failure. You also want to make sure that the electrical system is safe and does not present a fire hazard.
Be sure to thoroughly inspect the heating and air conditioning systems in any home you are considering purchasing.
The paint inside and outside the house can reveal a lot about the condition of the underlying material. Check several places on several walls, using your eyes and a screwdriver for poking.
Cracks in walls, doors not closing properly and uneven floors can all be signs that there is a problem with the foundation. If the foundation is not strong, the entire house could literally collapse, so you should carefully check for these signs. A bad foundation may not mean imminent disaster, but it could be used to bargain for a lower sale price, or you could ask to have the owner repair it before the sale.
The best way to avoid this is to get pre-approved for a mortgage so you know exactly how much you can afford. Usually, pre-approvals are free.
Unless an agent is working as your buyer representative, they represent the seller. Many people don't realize this.
A bad mortgage can cost you thousands in taxes and interest. Consult an accountant before you choose your mortgage.
You should always have a professional inspector look at the home before buying it, otherwise, you could be looking at huge repair costs later on. Read this guide to avoiding a money pit.
Get a mortgage professional to help you go over and prepare your credit file before you buy a home.
Keith Euraj brings a fresh approach to real estate, assisting buyers and sellers in both resale and pre-construction investments.