Buying A Home
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Where do we start? (buying a home/credit...ok,mostly credit)

Hi! Okay, so DH and I have decided we're tired of our apartment. Especially since they're wanting to raise our rent by almost $200. So we've been thinking of renting a home, but then thought, "Why rent when we can buy?"

We're trying to figure out where to start. We figured that credit is a good place. However, we know nothing about credit. I was told that since we've been renting for a year and have paid on time, we should have some credit built up. Is this correct? The apartment we currently have together is our first place and we do not have a credit card (ironically, we don't have one because the ones we applied for said we needed credit). 

So if this isn't correct, how can we build up credit? What do we really need to know about credit? I've done a few Google searches, but there's so much out there that I thought I'd come here and ask you ladies. 

Thanks!! And sorry if I seem idiotic, because I feel it right now! 

Re: Where do we start? (buying a home/credit...ok,mostly credit)

  • I'd post this on MM as it gets more traffic.

    1) You can get a free credit report by going to annualcreditreport.com. I think its a few bucks extra to get your score too. I would do that first.

    2) Talk to a loan officer about your potential for being approved for a loan. If FHA is a possibility, then that can get around credit issues up to a point. With FHA you also only need to put 3.5% down.

    3) In terms of building credit, you can do that by opening a cell phone in your name, then building to a credit card. Just make sure you pay EVERY SINGLE bill on time, or it can hurt you for years.  

  • Renting and paying that bill won't help your credit. It only will show up if they report to the credit bureau that you didn't pay (rare to happen too with renting).

     

    What I did when I got out of school was I got a credit card through my bank. They are usually easy to get one through with decent rates and they know your history financially. I just asked for a $500 limit, charged some things and paid the bill each month, just to build.

     

    There isn't harm in trying to get preapproved, but you should check out your credit report first too so you aren't surprised. The only things that show up are money you owe (for me, credit card, house, car, student loans) and anything reported as deliquent. Also, who has run your credit in the last (not sure how long) shows up.

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  • image summersweethearts2010:

    Hi! Okay, so DH and I have decided we're tired of our apartment. Especially since they're wanting to raise our rent by almost $200. So we've been thinking of renting a home, but then thought, "Why rent when we can buy?"

    We're trying to figure out where to start. We figured that credit is a good place. However, we know nothing about credit. I was told that since we've been renting for a year and have paid on time, we should have some credit built up. Is this correct? The apartment we currently have together is our first place and we do not have a credit card (ironically, we don't have one because the ones we applied for said we needed credit). 

    So if this isn't correct, how can we build up credit? What do we really need to know about credit? I've done a few Google searches, but there's so much out there that I thought I'd come here and ask you ladies. 

    Thanks!! And sorry if I seem idiotic, because I feel it right now! 

    Both DH and I rented for years (10+ each) and rental history is not on our credit reports.  I believe that apartment complexes/landlords don't report to the credit bureaus unless you don't pay.

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  • Definitely check your credit scores.  Have you ever had any loans (student, car, etc)?  Having a loan and paying it back on time is the best way to get a good credit score.  Basically, if you want to get a loan, the bank wants to know that you've been responsible with loans in the past. 

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  • Some credit unions will consider on time payment of rent/utilites etc as credit.

    Have you ever had a car loan or credit card?

    Two book to read -- Home Buying for Dummies and Mortgages for Dummies -- lots of great information.

    What you can do is save now bigtime for your downpayment, closing costs, moving costs, all those items you need to buy when you own a house (ladders, rakes, tools etc), repairs/renovations, decorating and utility deposits.

     

     

     

  • I'd get a credit card asap and start making some charges and paying it off each month.  Also try to stay away from the max amount of your card, it hurts your credit score if you often max out your card (even if you pay it off).  While it's not a good idea to have lots of store credit cards, if you have a favorite store that you shop at a lot it may be a good idea to get a credit card there so you can get some of the bonuses plus store cards are often easier to get.  Once you have a few months of credit history with that store card it may be easier to get a regular card.  Once you get a couple credit cards make sure you keep them in good standing.  How long you've had a credit card affects your credit score.  I think 7 year is the magic number that you no longer get dinged for not having credit.  If you still have trouble see if your parents can cosign a card for you.  Building good credit is SO important for getting a good interest rate on a mortgage, 1% difference of interest equals tens of thousands over the course of the loan. GL!
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  • Thanks SO much for your help, ladies!! Smile

    Oh! And I do have a student loan. However, I do not pay it back until after I graduate. Since i haven't graduated yet it won't affect my credit, will it? 

  • image summersweethearts2010:

    Thanks SO much for your help, ladies!! Smile

    Oh! And I do have a student loan. However, I do not pay it back until after I graduate. Since i haven't graduated yet it won't affect my credit, will it? 

    Actually the student loan may negatively affect your credit score since you've paid off 0% of it.  I'm pretty sure one of the things it uses to calculate your score is balance to available credit, or in the case of student or car loan, remaining balance to original loan amount.  Making some extra payments on your loan once you graduate will help your credit score, and definitely never miss a payment.  The good news if you are a student is that it's easier to get a credit card (well it used to be, all the new government regulations on credit cards might have changed that).

    October 2010 September SC - 1st Anniversary Plans:
    Trip to Prague & bring home furbaby when we get back
    image image
    ~ Karen ~
    **Wedding/House/Travel Bio **
  • Do not use more than 20% of your available credit on a credit card --- and always pay it off in full each month.
  • If you don't want a Credit card, talk to your local banks. They can get you pre-approved with no credit as long as you show 1 yrs history of paying all of you utility bills and rent on time and have a steady income. Your down payment will be a little higher in this case, but since you are not paying a credit card bill every month you could save your money.

    *Check out Dave Ramsey he can give you more advise on home loans w/o credit*

  • I've worked as a loan officer in banks and in the mortgage industry for a few years and here are a couple of tips :

    1) If you are not able to / don't feel comfortable getting an actual credit card, most banks offer something called a "Share Secured" credit card or loan.  The way these work is you give the bank a certain amount of money (say $500).  The bank then gives you either a loan or credit card (your preference) for that same amount.  Essentially you're paying yourself back (as you make payments, that money becomes available to you again from the loan or card, so you never really give the bank anything except maybe $2 in interest) but building credit on your own money.  It's not based on credit approval (since your backing the line of credit with your own money, there's no risk to the bank and they don't need to know what your score is), but they do report to credit bureaus.  Perfect for building or rebuilding credit.

    2) New inquiries and trade lines (credit cards, loans, etc) negatively affect your score temporarily.  As you maintain good standing after having one of these show up on your credit report, your score will rebuild quickly. 

    3) Keeping your credit card balances well below their limits is a big part of your score!  Lenders want to see that you are responsible with your lines of credit and don't spend every dime you have available.  The maximum you ever want to go is 70-75% of your limit, but 25-30% is ideal. 

    4) Don't let yourself get in over your head.  Debt-to-income ratio is a big deal, especially when you're looking at buying a house.  DTI does not include monthly utilities, phone bill, etc - only items reporting on your credit.  However, when submitting an application for a mortgage, lenders do 2 separate ratios; first, your housing ratio, which includes your monthly loan payment + homeowners insurance payment + property tax payment (since they'll be collecting for your escrow account too).  Generally speaking, this amount should not be more than about 28% of your total monthly income (before taxes).  Then, your debt ratio factors in all other credit obligations (credit cards and loans; student loan payments are deferred until you graduate.  However, when buying a house, if you are expected to graduate within 2 years, payments will be factored into your DTI ratio).  This should not be more than about 40% of your monthly income (again, before taxes).  Exceptions will sometimes be made if you show good reserves (liquid assets / cash) on hand. 

     That's all I can think of right now...  Hope this helped some! :)

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