By Jeanette Joy Fisher
Forget what you've been told about credit.
You may be shocked at some of these tips because this information runs
contrary to what other so called experts tell you. Qualifying for a
real estate purchase requires different credit than automobile
financing or retail credit.
Common Credit Myths
1. You need to pay off your credit cards.
2. You need to close credit accounts.
3. You need perfect or good credit to buy a house.
Credit Facts
1. Paying off your credit cards lowers your credit score.
2. Closing credit accounts lowers your credit score.
3. You don't need perfect credit to buy real estate.
Why not pay off credit cards? Because paid off credit cards do
not compute as much as open accounts in your credit score. Real estate
lenders like to see open, active accounts with LOW balances.
Why not close accounts? Closing accounts before the payoff often
costs consumers more money because credit card companies raise interest
on closed accounts.
You can buy real estate with poor credit, but you will save thousands
in loan costs if you maintain good credit. A bad credit report leaves
homebuyers with nonprime loans, which cost more with higher point
charges, prepayment penalties, and higher interest charges. For
instance, a mortgage loan of $150,000, 30-year, fixed-rate mortgage,
interest rate of about 5.72 percent costs around $870 a month; poor
credit scores raise the interest rate over 9 percent and the payments
over $1,200.
As you see from these payment differences, good credit means that you
can finance a more expensive house with the same income, or save $330
each month.
Credit Requirements for Mortgages
Credit needed to buy real estate is not the same as good credit.
Besides your credit score, mortgage lenders consider your
debt-to-income ratio and other credit matters, unlike other credit
grantors. Your debt-to-income ratio is the comparison of mortgage
payment, including taxes, interest, and insurance to your total gross
monthly income. Real estate lenders also consider your employment
qualifications and your overall debt ratios.
Understanding the difference between good credit and the credit needed to obtain real estate financing helps you buy houses!
Free "Credit Tips for Mortgage Financing" ebook at Real Estate Credit Help
Copyright © 2006 Jeanette J. Fisher