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Step 1 - Planning
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Hypothetical Credit Personalities, Are You One?
Let�s look at four hypothetical credit and personality profiles. Think about which profile fits your own most closely.
Frugal Freddie makes a modest salary and puts some money away every paycheck with an automatic savings plan. Freddie doesn�t exactly live life in the fast lane. He does charge the VISA for his annual vacation or occasional partying but he pays his bills on time. He likes the idea of buying a house as an investment, and he�s got some money stashed in a
Certificate of Deposit
Fred�s Profile? Excellent.
Freddie could qualify for a first-time homebuyer loan with a low
and reasonable terms. In order to figure out what Freddie can afford, he can use what lenders call the 28/36 guideline. Generally speaking, a lender will recommend keeping his monthly
payment to less than 28% of his monthly
, and his total monthly
(including house payments, car loan, etc.) under 36% of his
. Is it okay to have some
? Absolutely, in fact it may help to establish a positive credit rating. But what if you have a LOT of
? 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
limits. You can improve your chances by paying down that
and putting some money away.
Stus a good guy with a steady job. Hes just a little disorganized, thats all. He keeps the stack of bills to be paid in an old plastic napkin holder at the back edge of the kitchen table. Hes usually on time paying his bills but occasionally forgets. Hes not too worried about his
rating, though. "What difference will a few days make?" is Stus philosophy.
Stuarts Chances? Fair to good.
Its okay to be a few days late once in a while. Nobodys 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 Sloppy Stuart has been, and how often, it could start to hurt his
rating. You want your bill filing system to be better than Sloppy Stuarts, so you dont end up missing a payment. On the other hand, if youve 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 youll spend a year or two paying your bills on time and boosting your
Will and Wendy Wannabe
Will and Wendy want to be homeowners. They make a good combined salary and always pay their bills on time. But the sad fact is the Wannabes dont have much money set aside for the
on a 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 its hard to remember where the money went."
Will & Wendys Chances? Good to Excellent.
Excellent if they start
and saving, that is. Not having a stash of cash for a
doesnt mean they cant buy a house. They could qualify for a first-time homebuyer loan with a very low down payment. If they really want to get serious, theyll do a self-audit and keep track of everything they buy with cash or
(eating out, theater, or vacations). Then theyll set a maximum monthly spending limit for eating and entertainment and stick to it, saving any additional cash for a
on a home.
Practical Paula has plans and a dream. Shes been an honest, hard working truck driver for two years, hauling a regular load of pineapples between Paducah and Portland. But, now, after all of that time on the road, shes tired of the travel and has decided to make a career change and settle down. She plans to take community college courses, become a computer programmer and buy a condo. Shes got some money saved, too.
Paulas Prospects? 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. Paula might want to rent for a while in Provo and establish herself in programming. 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
s and townhouses are less costly than detached, single-family homes. So she should be able to qualify for
, after a year or so in a stable job, and find a lender to help bring her dream within reach.
The data lenders love to look at are:
your job history
if you pay your bills on time
whether you have money saved for a
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