4 Important Steps to Prepare for Homeownership By: Delvin Davis When a lot of consumers think of purchasing a home they think of the emotional side of ownership. While imagining where you will create milestone feel-good memories are important we can sometimes neglect the true cost aspects of preparing for such a large financial obligation. The following is a brief overview of what you can do today to ensure that you are in the best position possible to reap the many benefits of homeownership. Step 1: Obtain a good credit rating Every sport uses statistics to measure the performance ability of each individual participant to distinguish between success and failure. Consumer credit allows lenders to do the same thing by looking at your past performance, and your current situation. This enables banks, lenders, and financial service companies to get a uniform mathematical probability rating on how you will perform in the future. I've personally always liked to look at credit as your own personal score-card that validates your ability to repay people on time. It increases and decreases based on your performance, and the better you preform the more likely credit will be extended with the most favorable terms. Obtain a copy of your credit report for FREE Knowledge is power, and to obtain credible information is to be empowered. To obtain a good credit rating you must first become educated on your current credit situation. Since credit weights so important in today's economy the Fair Trade Commission (FTC) has designed a website were consumers can pull their own credit profile for FREE annually in order to monitor, evaluate, and dispute items listed on your personal credit report. http://annualcreditreport.com Validate Credit Information The next step would be to validate the debts and liabilities listed and dispute any inaccuracies listed on your report, and provide each credit repository or bureau documentation supporting the disputed item. Mistakes happen, and this will go a long way to improving your scores over a 3 to 6 months’ time period to ensure that you aren't being punished by inaccuracies listed on your credit profile. Pay Bills On-time The next and by far the most important thing you will need to do is to pay all bills and liabilities on time all-the-time to improve your performance levels. This is the greatest fundamental key to having a great credit rating. The credit bureau's measure credit by several categories (How many accounts are open, How much debt you have compared to your income, Request for new credit inquiries) the list goes on and on, but this category is 50% - 60% of decision matrix of their scoring system. Again, if you pay your bills on time every month your credit worthiness will improve. There are many myths that exist about credit and what constitutes a credit-worthy buyer, but if you know your credit history, pay all bills on time, and manage your current debts you will be strongly positioned to obtain the very best available financing lenders and banks have to offer. Step 2: Establish your home buying budget There are thousands of helpful websites, counseling services, and tools available to help you obtain a mortgage, but not a lot of information to help prepare homeowners for maintaining their home, and what to avoid the months following the purchase. This is why the next in step is to create a monthly home buying budget. Decreasing your Debt-to-Income Ratios Increases your CAMPACITY to repay While paying you bills on-time is the key to creating an excellent credit profile the management of debt ratios is also a deciding factor when lenders and banks receive your loan application. Debt-to-Income or capacity to repay is the difference between how much monthly debt you have paid out in comparison how much income you have going in. All lenders are different, but most mortgage guidelines today require a total debt ratio under 43% to be approved for a mortgage loan. This means you want to payoff smallest bills, and limit large financial commitments the months prior to obtaining a home loan. Once you review your FREE credit report you will be able to capture a snapshot of all your monthly liabilities, and begin working on reducing your monthly outgoing expenses. Check out Bills.com which offers articles, tools and solutions help people save time, money, and stress by addressing the everyday money issues faced by most of us... all for FREE! http://www.bills.com/ Step 3: Save money for a down payment, moving expenses, and the unknown In the world of credit finance the best terms, rates, and programs are available to those who have the most vested interested into the property. Whenever a lender reviews your asset portfolio they are going to first determine if you have enough money for a down payment, and secondly review how many months of cash reserves you will have to continue making payments once the loan is closed. Simply put lenders want to ensure that you will be financially suitable to continue to maintain the mortgage even when the unexpected happens. Bankrate.com offers a FREE Budgeting toolkit to help consumers create good habits to maximize savings in today’s economy. http://www.bankrate.com/finance/financial-literacy/budgeting-tools-tips-and-work-sheets.aspx Step 4: Pre-qualify for a home loan After you evaluate your credit profile, develop a monthly budget, and save for your down payment and reserves you will need to contact a mortgage professional who is licensed to do business in your state to be pre-qualified for your home loan prior to meeting with your realtor or making an offer on a property. When considering mortgage financing options researching a loan officer to validate your application is very important. The qualifications and experience of this individual will ultimately determine how much home you can afford, what programs you qualify for, and how much the financing of the property will cost. After the housing meltdown in the late 2000’s federal regulators created a system to ensure that there were minimum licensing requirements would be instituted for organizations, and individuals who originated mortgages moving forward. This system is called the Nationwide Mortgage Licensing System (NMLS). NMLS ensures that all loan companies meet state and federal standards for initial and ongoing educational, credit, assets, and bond requirements for the mortgage lending industry. Both the companies that lend, and the individuals who originate mortgages are assigned a Unique Identifier that’s posted on all correspondence not limited to websites, advertisements, and loan documentation. You will want to acquire both the individuals and the companies NMLS number, and go type this information into the register that will give you access to their active status, and any complaints made through state agencies about their origination activities. You can access the NMLS website for FREE at http://www.nmlsconsumeraccess.org/. You are now well on your way to making your Real Estate purchase dreams a realty. Happy House Hunting!!!! FREE Tools and Resources Receive FREE Annual Credit Report http://annualcreditreport.com Bills.com – FREE Online Budgeting Tools and Resources http://www.bills.com/ Bankrate.com – FREE Budgeting Toolkit http://www.bankrate.com/finance/financial-literacy/budgeting-tools-tips-and-work-sheets.aspx Nationwide License Mortgage System (Consumer Access) – Research Mortgage Professionals http://www.nmlsconsumeraccess.org/