The Credit & Personality
Read the following "financial types" and see if
you recognize yourself.
This exercise will help you begin
to see yourself from a lender's perspective and to consider whether you're ready
to purchase, financially speaking.
We're going to take a
close look at five hypothetical Credit and Personality Types. We'll review each
and YOU can try to figure out which profile fits your own most closely. That way
you can follow the suggested actions that will be most useful for YOUR situation.
After this course, you'll have a better understanding of how to improve it.
Credit & Personality Type #1
Credit & Personality Type #1 makes a modest salary and puts some money away every
paycheck with an automatic savings plan. They don't live life in the fast lane.
They DO charge the VISA for the annual vacation or occasional partying, but pay
their bills on time. They like the idea of buying a house as an investment, and
have some money stashed in a Certificate of Deposit for a down payment.
& Personality #1's Chances of Qualifying? Excellent.
& Personality Type #1 could qualify for a first-time homebuyer loan with a low
down payment and reasonable terms. In order to figure out what Type #1 can afford,
they can use what lenders call the 28/36 guideline.
speaking, a lender will recommend keeping his or her monthly mortgage payment
to less than 28% of their monthly income before taxes, and their total monthly
debt (including house payments, car loan, etc.) under 36% of annual income.
it okay to have some credit card debt? Absolutely, in fact it may help to establish
a positive credit rating. But what if you have a LOT of credit card debt? No harm
in that as long as you pay your bills on time, right? NOT necessarily-from a lender's
perspective, it's unwise to push your cards to their credit limits. You can improve
your chances by paying down that debt and putting some money away.
& Personality Type #2
Let's say that Credit & Personality
Type #2 has always had a steady job but is just a little disorganized. This individual
keeps the stack of bills to be paid in an old plastic napkin holder at the back
edge of the kitchen table. While he or she usually pays the bills on time, they
occasionally DO forget. They're not worried about their credit rating, though.
"What difference will a few days make?" is Type #2's philosophy.
Chances of Qualifying? Fair to good.
It's okay to be a few
days late once in a while. Nobody's perfect, and no lender expects you to be.
But now that you want to be a homeowner, it pays to be prompt. Depending on how
late Type#2 has been, and how often, it could start to hurt their credit rating.
You want your bill filing system to be better than this type of person, so you
don't end up missing a payment. On the other hand, if you've had legitimate reasons
for being late, be sure to explain the reasons honestly and a lender will give
you a fair shake in qualifying for a loan. The worst scenario is you'll spend
a year or two paying your bills on time and boosting your credit rating.
& Personality Type #3
Credit & Personality Type #3 are
a couple who want to upgrade their home for a larger one. They make a good combined
salary and always pay their bills on time. But the sad fact is that the Type#3
folks don't have much money set aside for the down payment on a new home. "How
can we ever afford to buy a house and have a family?" they say. "By the end of
the month, all we have is a bunch of ATM receipts but it's hard to remember where
the money went."
#3's Chances of Qualifying? Good to Excellent.
Excellent if they start budgeting and saving, that is. Not
having a stash of cash for a down payment doesn't mean they can't buy a house.
They may be able to qualify for a loan with a very low down payment. If they really
want to get serious, they'll do a self-audit and keep track of everything they
buy with cash or credit (eating out, theater, or vacations). Then they'll set
a maximum monthly spending limit for eating and entertainment and stick to it,
saving any additional cash for a down payment on a home.
& Personality Type #4
Credit & Personality Type #4 is
a single female who has plans and a dream. She's held a regular-but-modest-paying
job for two years. Now she's decided to make a major upward career change, learn
computer programming and wants to buy a condo. She's got some money saved, too.
#4's Chances of Qualifying? Good. After a year or so.
Loan underwriters like evidence of job stability. They tend to be wary of people
making a major career change. This Type of person might want to stay where she
is or rent for a while. Plus she might want to wait until she's finished training
she can establish herself in a better-paying position. But her savings are a point
in her favor. A local lender will appreciate the job growth potential of her career
choice of computer programming. Also, many condominiums and townhouses are less
costly than detached, single-family homes. So she should be able to qualify for
mortgage, after a year or so in a stable job, and find a lender to help bring
her dream within reach.
Credit & Personality Type #5
Credit & Personality Type #5 has been renting the same apartment for two years
and has been paying as much as they would for a mortgage on their own place. Now
this person wants to get a place of their own and stop throwing away rent payments
every year. They've always paid the rent and other bills on time, but, for one
reason or another, never took the leap into home ownership. Type#5 does have a
little money saved, but not much.
#5's Chances of Qualifying?
Good to excellent.
Many first-time home buyers can secure
mortgages with low down payments. Since their rent is equivalent to the mortgage
payment they would need, they're likely to qualify under the lenders' 28/36 guideline.
Type#5's chances for qualifying would be even better if he or she buckled down
for six to twelve months and saved a sum for the down payment and closing costs.
What's the Moral to these Stories?You Can Be a Homeowner
or Move Up to a Larger Home
Are you ready to buy a new
home? From looking at these hypothetical characters, you can start to get the
idea of what lenders are looking for. They assess your job history; if you pay
your bills on time; your overall debt; and, whether you have money saved for a
down payment. Lenders know that every borrower is different, and no lender expects
you to be perfect. Their job is to lend money, so if they can make a home mortgage
loan work for you, they will.
Thinking Like a Lender
Part of the work...
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