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Get Your Financial Picture In Order

So you’ve decided you’re ready to buy your first home or real estate investment….congratulations!

Chicago Lake Condos - Get Your Financial Picture in Order - Jean Ward - Financial FreedomHow are you going to pay for it?  If you’re not completely sure or don’t have the slightest idea, you should take note that there are basic requirements that usually need to be met before considering a new home purchase, such as having enough money to purchase the property outright, or at least enough to make a down payment on a loan, which is traditionally 3-20% of the purchase price depending on the type of loan you need.  You also need to have decent credit and a stream of income that will allow you to obtain financing if cash is not an option.  Finally, you need to be prepared for the responsibility and expenses of a new home and move.  If these prerequisites don’t ring true for you, you should head back to the drawing board.  If you’re in this boat, but still want to purchase a home, sit down and take stock of your financial snapshot, then devise a plan to overhaul that picture and execute the plan. 

Start by scheduling a visit with a mortgage lender and have them run your credit report to see if you could qualify for a mortgage today on a sample property with an estimated sales price close to the listing price.  If you do qualify based on your credit and income, but just don’t have enough money to buy now, ask the broker to create an estimated Settlement Statement that will show you how much money you would need to have up front to close on a home, as well as the monthly mortgage commitment amount.  Then start saving!  If you find that your credit history is not strong enough to support a loan commitment, start working on upgrading your credit score.  If both credit and money are a problem, fix them both.

If it’s cash you’re short on, devise a savings plan to meet your goal.  Use the tried and true method of spend less or make more, or for optimal results, do both!  Look at your current budget and identify where you can shave discretionary expenses.  Maybe you can pick up a part-time job, even if only temporarily, to bring in more money as well.  If you don’t have a current budget, create one immediately and track the money coming in and going out.  Just paying attention to the budget is half the battle.  It’s similar to dieting in that it’s not always the method in which you try to lose weight that is responsible for the loss, but more the awareness of the food consumed and exercise exerted that is ultimately responsible.  Once a new budget is created, stick to it!  Dave Ramsey’s Total Money Makeover is a quick read and provides easy, common-sense guidelines on how to alter your financial future.

If it’s credit that’s a problem, address the issue at the core.  Before you take one step to fix your credit history, change the current-day actions that created the credit issues in the first place.  First and foremost, quit using credit to purchase items or services you don’t have the cash money to pay for.  Evaluate every purchase moving forward and prioritize its need.  If you truly need it, buy it with cash.  If you don’t have cash, wait to buy it after you’ve saved the money.  If you don’t truly need it, don’t buy it.  If you regularly pay bills late or don’t meet the full payments, have a sit-down with yourself to determine why you do this.  If it’s a cash-flow issue, focus on indefinitely spending as little of your income as possible on discretionary spending until you get caught up on your bills.  If it’s disorganization or prioritizing, address the root problem and start paying your bills on time and in full.  Whatever it takes to alter your habits to include always getting your bills paid in full on time, just do it.  If you have outstanding balances, pay them off immediately.  If you have too large of a debt to income ratio, work on whittling down the debt.  Your mortgage lender can help educate you on these ratios. 

Once you’ve identified and corrected the habits that are holding you back from a positive credit history, start working on repairing the credit history you have.  Simply paying bills on time and in full, as well as chipping away at debt, will ultimately improve your credit score.  Additionally, though, you should scour your actual credit report from all three reporting bureaus for errors and accuracy.  Dispute any discrepancies on the report with the bureaus that reported it.  Be prepared to provide documentation for your dispute. The credit bureau will contact the company that reported the negative or erroneous data.  If the company that originally reported the data does not respond within a specific time period, the information will be removed from your report, many times improving your score.  If the company does respond, it puts you in a better position to negotiate a settlement for a bona fide balance.

It’s work to fix your history and every more of a chore to alter your habits, but if you follow these common-sense financial steps, you can be in a position to buy within a matter of months.  When that time comes, contact me and I’ll help you find the right property!

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