| Can you really afford a house? If so, how much | | | | YOUR CREDIT REPORT |
| house can you afford? To determine this answer will | | | | Your credit score is the single most important factor |
| take serious financial planning, and the best time to | | | | determining whether you’ll get approved for a |
| start is at least six months before buying the home. | | | | mortgage, car loan, refinance loan, or credit cards, |
| Although buying a new home may seem like an | | | | and what your APR will be. If your score is low, |
| American Dream or romantic venture, the reality is | | | | you’ll pay very high interest rates, up to 23%. |
| that the house you can afford depends on your | | | | Most people are also unaware that their credit score |
| current income and debt obligations. You must be | | | | also affects how much they pay for car insurance |
| able to pay your mortgage, satisfy all your current | | | | rates too. Many insurance companies run a credit |
| debt, and still have money left over each month to | | | | check on you before selling you insurance. |
| put in the bank. When you consider all these issues, | | | | CALCULATING YOUR CREDIT SCORE |
| you may find you will actually be shopping for a | | | | You should get your credit report at least once |
| lower-priced house than the anticipated dream home. | | | | every year to verify it for accuracy, and make |
| If after careful financial evaluation, you realize you | | | | certain your credit score is up to par. If your credit is |
| cannot afford the house of your dreams, | | | | clean and you have your down payment ready to |
| don’t feel tempted to count on expected | | | | go, you won’t need as much time to plan for |
| annual raises, thinking that eventually you’ll be | | | | a new home. |
| able to afford the higher payments. Most raises are | | | | Everyone has a credit score calculated at the time |
| generally 4% to 7%. In bad times, you won’t | | | | your credit report is requested. It’s based on |
| get a raise, while inflation overtakes you. In the | | | | over 100 different proprietary variables and |
| worse case scenario, you may get laid off and you | | | | algorithms developed by Fair Isaac (FICO). The range |
| won’t be able to afford your monthly bills. If | | | | is 300 to 850. You can get your credit score from |
| you don’t have a budget that includes a | | | | Equifax Score Power, True Credit, or Consumerinfo. |
| savings account worked out on a spreadsheet, you | | | | Most lenders consider people above 650 to be prime |
| are faced with a serious debt problem waiting to | | | | borrowers, meaning they will most likely be approved |
| happen. If you cannot recite from memory all the | | | | at favorable rates. According to a credit report from |
| creditors you owe and how much you owe them, | | | | Equifax, 71% of the people with a credit score from |
| you have a credit problem. | | | | 500-550 will default on their credit. Another 51% of |
| MONTHLY BUDGET SHEET | | | | buyers with a credit score from 550-600 will default |
| At the top of your planning list, you must determine | | | | on their credit. It is for this very reason that lenders |
| what your mortgage payments will be, while not | | | | run your credit report and focus on your FICO |
| ignoring other monthly expenses. Remember, you | | | | Beacon score. |
| need this complete research, and an organized | | | | FACTORS AFFECTING YOUR CREDIT SCORE |
| budget sheet, to guard against becoming seriously in | | | | The most important factor affecting your score is |
| debt. | | | | the length of your credit history. College students |
| For example, besides the home loan, monthly | | | | generally have low scores, while 30-somethings have |
| expenditures to add to your budget sheet may | | | | higher scores. If you have too many accounts open, |
| include: | | | | they can lower your credit score also. Opening |
| * Homeowners insurance, | | | | several department store credit card accounts and |
| * Homeowners Association Fees, | | | | excessive financing accounts also lowers your beacon |
| * Flood insurance, | | | | score. |
| * Mortgage insurance, | | | | So, take an inventory of your credit cards. Do you |
| * Utilities, | | | | have department store credit cards, appliance store |
| * Garbage, | | | | credit cards, and computer store finance cards that |
| * Cable TV, | | | | are no longer used? What’s worse, even if a |
| * Groceries, | | | | store is defunct, your account may still appear on |
| * Lawn service, | | | | your credit report as open. Call all sources and close |
| * Pet groomer, | | | | these accounts since you never use them. |
| * Doctor and veterinarian bills, | | | | Just remember, it takes about 30 days for the |
| * Auto loan and/or unexpected auto repairs, | | | | closing transactions to appear on your credit report. |
| * Drycleaning bills, | | | | Once you successfully dispute and remove negative |
| * Savings account, | | | | items from your credit report, wait 30-60 days and |
| * Lunch money for spouses and kids, and many | | | | order another copy of your report to verify that the |
| other obligations. | | | | bad debt was removed and you now have a higher |
| Second on your list is to clean up your credit report. | | | | score. |