So you’re done paying off the debts from your divorce and you’re ready to buy your first house. Where to start? What do you need? Here are a few pieces of common sense and little known advice.
1. Make sure you have three good, open lines of credit. Anything with a regularly paid installment should be okay, like a car loan or a credit card. However, prepaid credit cards, a gas station card or a car lease won’t work. Student loans and auto leases can help, if the installments are paid on time. Auto leases aren’t the best idea, due to the lump sum that is often due at the end of the contract. You also DON’T want to open a credit card right before buying a home, so plan ahead! Also, a quick note: Never close a credit card. Your credit is based upon what you can borrow, but don’t.
2. While we’re talking about credit cards, here’s how you can deal with your debt in a way that can still let you get a loan. If you have a lot of debt, worry about making big enough payments, not about the total. Companies set a minimum amount that you need to pay each month, but what they don’t tell you is that if you’re making payments of less than 5% of the total owed (even if this is more than the minimum payment), it’s hurting your credit. The best way to prepare for buying a home, even if you have debt, is to make on-time payments of at least 5% for the twelve months prior to applying for the loan. Even someone in a Chapter 13 bankruptcy can get a loan, if they’ve made twelve months of payments!
3. In some cases, when you’re buying a home, student loan servicers will let clients defer payments for some time. Not all of them will do this, and keep in mind this is usually only an option when buying a home, not refinancing.
4. See a broker and get pre-qualified for the loan before house-hunting. This can save you from unpleasant surprises down the line!
5. Remember, even someone in a Chapter 13 bankruptcy can get an FHA loan to buy a house, so long as he or she has made 12 consecutive payments to his or her creditors.
6. Scout out the area! Don’t just trust the real estate agent to tell you about the neighborhood. Talk to the neighbors, and not just whoever is next door to the house you want to buy. Go across the street! Talk to the local police department. Talk to the mailman – he sees everything that goes on in the neighborhood.
Information for this article was provided by Bob Raaf of First Equity Mortgage, the oldest mortgage brokerage in Missouri. The telephone number for First Equity is 314-872-2901, and their website is www.stlouismortgage.com.