A lot of people are excited because the homebuyer’s tax credit has been extended. While there’s no doubt that this credit can be beneficial, that’s only the case if you’re truly prepared and can afford to buy WITHOUT the credit.
For months now, news broadcasts have stated that it’s a “buyer’s market” due to the increasing number of foreclosures as well as continued low interest rates. If you’re someone who’s interesting in buying in the near future, there are several steps you need to take so this will be a series of posts. Step one is GET YOUR CREDIT RIGHT. Get your FICO score as well as copies of all three credit reports (Experian, Transunion and Equifax). You are entitled to at least one free credit report per year. The official site is www.annualcreditreport.com. However some states, like Georgia, allow you to receive two free reports per year.
If you have a FICO score of 700+, you’re doing great. If your score is 600-700, I’m not going to say don’t buy a house but you need to evaluate why your score is that low as well as realize you won’t be able to get the best mortgage rates. If your score is below 600, you don’t need to buy a house right now and with the current mortgage situation, you probably won’t be able to get a mortgage anyway. Get your credit right and revisit the issue in a year or so. However, DO NOT pay anyone who says they can fix your credit for you. Either they’re charging you to do something you can do yourself for free (disputing genuinely inaccurate info) or doing something dishonest and/or illegal.
Checking your credit reports is important because you never know what’s on there. I have excellent credit and always have but recently a collection showed up on my credit report. It was a bill from a city I hadn’t lived in for over three years and they attached a collection without ever contacting me. It took a few phone calls and faxing proof of when I moved out of the city but I got the collection removed.
The first thing you want to do is get any incorrect info removed (accounts that aren’t yours, accounts that are closed or paid off but don’t reflect that, etc.). If you do have negative information that IS accurate, you need to resolve those issues as well. If you have accounts in collections, get those paid. If you have late pays on accounts, call up the companies and ask if they’ll remove the negative notations once you have X months of on-time payments. However, DO NOT open or close any accounts. Both will generally hurt your credit score and you don’t want that to happen.
You don’t want to have credit card debt if you want to buy a home. However, if you do have debt, pay attention to your balance ratios. It looks bad if you are using more than 30% of available credit on any one card and more than 50% of your total available credit. For example, if you have a credit card with a $1000 limit, try to get your balance below 30% of that ($300). In a later post I will go into details about paying off debt vs saving for a down payment. However, this should get your started. If you guys have any questions, leave them in the comments and I promise to answer all of them. The next step (and next post) is GETTING YOUR MONEY RIGHT.