Lenders and Their Requirements
By · November 13, 2010
Well, if the real estate market is topsy turvy due to the unconventional loans of the recent past, the lenders today are making up for those bad decisions. Not only is it very difficult to get a loan if you have good credit, they are wrecking havoc on the unsuspecting buyer who is trying to buy his first home.
It is important to have good credit and that credit is all calculated on what is called your FICO score - Fair Issac Corporation
I recently had a young buyer with whom I had been showing property and she had a very small down payment. Her down payment increased a bit when she received a small inheritance during the time we started looking for her first home. We looked and looked and all we could find in her price range were rundown homes or a condo.
Finally, she decided to ask her brother, with whom she is very close if he wanted to buy a home with her. He agreed. Even though they both had good credit, their loan agent, John Barrett of Delloro Financial, told them both not to buy anything during this time because it could affect how much house they could afford.
We looked and looked and made many offers only to be outbid on all of them. Then the time came and their offer was accepted on a great house in the Sunshine Gardens tract in South San Francisco . It was perfect for them. They both had grown up in South San Francisco, the brother had lots of friends that lived by and he also works for the City.
It had been quite a few months since they were pre-approved and some of the requirements had changed. John Barrett updated all their information only to discover that the brother's credit score dipped just enough that they needed more money down or they had to take a FHA loan. Thinking that he had been late paying his credit card bills or charged a lot on his cards, I was surprised to find out the reason for the dip in his credit score. The brother decided to pay his credit cards DOWN so he would have less debt. In doing so, the credit card companies lowered the amount of money he could borrow, thus showing that he was at the higher end of his credit limit! This lowered his credit score just enough that he now needed an FHA loan which was more costly in terms of a higher interest rate and higher fees!
Can you believe that? Here he was trying to pay down his debt and the credit card companies penalize him to where it cost him and his sister in terms of paying more for their loan.
I'm not trying to tell you not to pay your debts down because at 12%, 18% or more, it is usually much better to have less debt. You can't write off those interest payments like we used to many years ago,but paying those high interest rates doesn't help your pocketbook. If you can, pay off your cards each month. However, the credit card companies don't like that very much either because they lose money.
When our daughter was in college, we showed her a trick that she uses to this day. When you charge something, take it out of your checkbook so you know you have the money. I don't like the debit cards and won't use them because you don't have the security of disputing a charge if you have a problem as you would if you use a credit card. With checks, cash and a debbit card you have no recourse. When you charge, normally you have 90 days to dispute the charge, but check the rules with your credit card company. We have used this in the past when when we received defective material or items that were never received.
So, if you are considering buying a house using a loan, make sure you are pre-approved first but be prepared for for things to go awry. Buying a house is sometimes not for the faint of heart.
Here is a little interesting note - the brother and sister bought the house and seem quite happy there. In fact, the father of the buyers is an old classmate of mine and my husband's. Not only that, but so is the owner of the house. We all went to school together. Small world, isn't it?