What’s Your Credit Like?
Tuesday, June 3rd, 2008
A few weeks ago I wrote a blog about now being the time for buyers to step up. I need to elaborate on some issues though. I actually believe we have seen where the bottom of this real estate market is going. That bottom is homes priced under $200,000. I have personally had listings under this threshold with multiple offers and some even being bid up. The problem is we don’t actually have enough good properties under this threshold yet. Give it some time we will. Additionally, we are seeing investors jump back in the game, especially if they can get properties at 60-70 percent of the broker price opinion. The reason they are returning is because the market is full of potential renters that actually have lots of cash. These potential renters have cash because they haven’t had to make a mortgage payment for over six to eight months due to short sales or foreclosure. Most of these people still have jobs with the ability to make payments, just not the amount they have to pay to keep a home that isn’t worth what they paid for it. How do you spell bad investment? These people are great prospects for renters and even in some cases, rent to own prospects, with nice healthy deposits up front. Music to the ears of any would be investor for sure!
The other folks getting into the game are first time home buyers. According to CAR statistics the minimum household income needed to purchase an entry-level home at $356,350 in the first quarter of 2008 was $68,830, based on an adjustable rate of 5.65 percent and assuming a 10 percent down payment. They went on to say that first time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment and insurance was $2,260 for the first quarter. At $68,830 the minimum qualifying income was 30 percent lower than a year ago.
In the High Desert that means 64 percent of the people can afford to by a home according to CAR, along with Sacramento County, this is the highest affordability area in the state. In the rest of the Inland Empire it varies between 30 and 45 percent. Those are very good numbers, much improved over years past. However to do this you need to have full documentation of income, good credit and where the down payment will come from. With FHA the down payment part is simple; it can be gift money, either from your family or from a charitable organization like the Nehemiah Group. Credit I’m finding is another issue all together. It seems there was an additional reason why folks didn’t get into the housing market the past few years and it has nothing to do with home values. Some folks just don’t understand their credit report. No credit is equally as disqualifying as bad credit. My first advice to everyone is to know what your credit report looks like. Go online and Google “credit report” and you will see plenty of sites. My favorite is the one we see all the time on TV and has the cute little jingle sung by the guy in the fish restaurant, freecreditreport.com. Next, get with someone that can help you understand this and start getting it in shape. If you have any late payments, charges off, repossessions they all need to be cleaned up before you can buy. If you have a judgment, pay it. If all these “dings” on your report have been paid but still show open you need to contact the creditors on your report and ask them to remove these items. Now you may need to supply supporting evidence it is paid, so do your research. If the bad credit is your spouse and you can show enough income on your own and you don’t need your spouse, you may be okay. With people that don’t have any credit, you need to establish at least four lines of some form. Also, folks open up a checking account! Don’t pay bills with cash or money orders; you have no record that you made payments. If you’re renting you can use the utility bills but if you paid in cash you have no record of paying. If this is the case you will need to go to the utility companies and beg them for a record of payment; however that may or may not show who made the payments so you can’t establish credit in your own name and that is what you need. Also, things like too much credit or open accounts and a lot of inquiries will hurt you. If you were shopping for a car and you went to several dealers they may have all looked at your credit report. That is not good ether. If you know in advance what your report looks like you’re ahead of the game. It amazes me that when I sit down with prospects and I ask them “what I can expect to see on your credit report” they have no clue or they assume that everything is okay! Be informed folks it’s that simple. Bottom line is this, understand your credit report before you try to get a loan and be honest and up front with your lender.