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Forget what you've been told about credit. Qualifying for
a real estate purchase requires different credit than
automobile financing or retail credit.
You may be shocked at some of these tips because this
information runs contrary to what other so-called credit
experts tell you.
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 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 home buyers with non-prime loans which
have higher point charges, prepayment penalties, and higher
interest charges, which therefore cost more money. 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!
Writer's Resource Box:
Copyright (c) 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of Credit Help! Get the
Credit You Need to Buy Real Estate, Doghouse to Dollhouse for
Dollars and other books, teaches Real Estate Investing and
Design Psychology. For more credit articles, tips, reports,
and newsletters, see http://www.recredithelp.com
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