Credit to Buy Home

Is My Credit Good Enough to Buy a House?

The most common reason I hear when asking people why they are renting as opposed to buying is "I'm currently working on my credit". Did you know that you can secure a government backed loan starting with a 580 credit score?  A lot of lenders require you to have a 620 but there are a few out there who will take on a 580. The higher the score, the lower the interest rate however buying a home with a 580 is very doable. You can always purchase the home and refinance at a later date when you have raised your credit score (yes buying the home will give your score a little dip because your taking on more debt). 

So my question to you is... "Is that really the reason"??? Unless you went though a recent divorce, bankruptcy or had our car repo'd in the last few months, landing a 580 credit score should be VERY attainable and should only take you less than a year to do if you are truly committed to becoming a home owner. Below are a few tips to help you get that credit up:

1. Obvious tip... pay your bills ON TIME! - I personally set every bill I have on auto-pay b/c if I don't, with 100% certainty, I will forget one bill at some point and it'll ding my credit. Missing a single payment will stick with you for years. AUTOMATE!

2. Increase your credit utilization - The more credit you have available to you AND the less of that credit you are using, the better. For example if you have a credit card with a $5000 limit and you carry a balance of $4500 every month... No Bueno. However if you keep that balance closer to $500 (and better yet paid off each month) this will boost your score over time. If you have a good record with a credit card, ask for a credit limit increase. Again, the more credit available to you, the better. 

3. Don't close accounts and keep them active - if you have that old Macy's card or TJ Maxx card because you just had to have that extra 10% of your one time purchase of $75, don't let that card auto close. See tip 2 above, the more credit you have available, the better, but also the age of your available credit plays a role as well. So if you have an old card that goes inactive... No Bueno. Use the card once every few months and pay it off immediately. 

4. Don't open too many accounts to quick - Yes the more credit you have available the better, but going out and opening 3 new credit cards next month... No Bueno. Same as above, it will also hurt your average age of your available credit if you have 3 brand spanking new accounts. 

5. Hire a credit repair company - these companies can help you remove negative hits against your score and will help to raise it. But I feel, even more importantly, if you commit to paying a company to help you, your more likely to stick to the plan and follow through with your credit repair. No one wants to pay $89.99 month to repair credit and then go out and do something to sabotage it and waste that $89.99. Some lenders will give you free credit repair assistance if your very close to where you need to be (they don't make money unless they can loan you money) so shop around. 

6. Start working with a realtor - why would you do this if your not even ready to buy a home??? Im sure you have heard of the analogy of using a stick and carrot to motivate a rabbit to get a move on. Same here, if you have a goal to buy a home, seeing beautiful homes that you COULD afford only if your credit was where it needed to be will help to keep you on track to your credit repair goal. This could be tricky because most realtors won't show many homes to an un-approved buyer (meaning they haven't spoke with a lender and been approved for a certain $ amount they will be qualified for). However if you can show your realtor that your committed with a steady climbing score, then he/she should commit to helping you with your goal.

So if your tired of paying your landlord's mortgage (and for their summer vacations to Italy) start working on your credit and save up some cash for your own place. Ill conclude with this short story. I currently own 8 rental properties, all with mortgages, and when I hit 20 units, I should be able to retire with $100,000 NET annual income for the next 30 years (it jumps to around $300,000 a year after the mortgages are paid off). So what this means is that it is much cheaper to own property than it is to rent it in the long run. Why do you think the richest people in this country own tons of real estate???

So what are you waiting on... start working on that credit NOW...