In last week’s blog post, we talked about the essential differences between real estate loans, 203(k) and rehab loans, construction loans, and everything in between! In this week’s blog post, I’m going to tell you a couple of things you need to consider when it comes to your credit card usage, any accumulated student loan debt, and how that will affect your ability to buy a house! Section 1: How Many Credit Cards You Have with Extra Credit on Them, Matters! Trust me when I tell you, you don’t want to have more than two or three credit cards with balances on them. Why? Because a lender will not only look at what your balance is on your credit card(s), but also, what your credit limit is on each of them. A good rule of thumb when handling credit cards is to not have more than 30% of your available credit card balance already used. Why is that you ask? Because once you get past the 30% mark or so, that extra credit usage starts affecting your FICO (aka credit) score negatively. Additionally, a little piece of advice from your friendly neighborhood real estate alien friend! 😊 If you have a bunch of credit cards with no balances on them, don’t close those accounts! Closing those accounts would then really ding your credit score, and you don’t want that! Further, you also don’t want to USE those credit cards either! The reason? One of the things that a lender is going to be able to see is what your total line of credit is on each of those credit cards. They’re interstellar in that way, if you get my space drift. It’s ONE thing to have balances on those cards; it’s ANOTHER thing altogether to know that you have a large credit line that COULD be used by you! Talk about a vortex of confusion, aye? So, what do you do if you already have lots of credit cards and accounts? Here’s my advice! When you’re thinking about buying a home, ask your lender to advise you about how many credit cards you should have, as well as whether you should pay down your credit cards, either partially or completely. Section 2: During the Loan Application Process Earlier, we talked about the pre-home-buying steps before applying for a loan. Now we must discuss the homebuying prep steps themselves: the application process. Once you apply for a home loan, what you DON’T want to do is make any large purchases, like a new car, a brand-new interstellar spaceship for optimal space travel, or something else that costs a lot. Why? Because then you won’t qualify for as much of a house on Earth! Further, if you make a large purchase after having already received an accepted offer on a home, then you might’ve just jeopardized your home purchase by spending that money in the middle of your loan process! Talk about a meteor shower of chaos! To avoid such chaos, it’s essential to consider this REALLY important note! Your ability to get a loan can actually be cancelled by that large purchase, so just remember not to buy anything big during this time! That spaceship isn’t worth it if it means you don’t have any ground to stand on! Likewise, don’t open any new credit card or store accounts either during this time, as that is just as risky as leaping empty-handed into a black hole! Section 3: Regarding Student Loans Speaking of avoiding vortexes, black holes, asteroids, and all other forms of chaos that can arise from purchasing a home, it’s time to talk about student loans! As far as student loans go, the lender will look at what your student loan balance is, your payment history on them, etc. Even if you have your student loans in either forbearance or deferred status, that total balance will come into play when buying a new home. Your lender will count what your monthly student loan payment either currently is or WOULD be after your loan isn’t deferred or in forbearance anymore! For example! Say you are currently paying $150 per month to cover your student loans. That’ll mean after you’ve run all your debt by your lender, that $150 per month of student loan payment is $150 per month off a home that you can buy, if that makes sense! Phew! Glad we dodged that asteroid! More advice from me! If you don’t already have all your student loans combined into one, then you definitely want to do that before applying for a home loan, because otherwise, that wouldn’t at all be wise to have a bunch of individual student loans out there, each with its own amount of interest that’s accumulating every month! The process to consolidate your student loan debt is super easy! Even if you’re not planning to buy a home for a while, it’s smart to consolidate your student loan debt now! I am so glad that, as your friendly neighborhood resident real estate alien, I could provide you with all the key advice you need to successfully get yourselves situated for your loan application journey! In conclusion, pay attention to those credit balances without cancelling your accounts, ask your credit lender for advice when you have more than one card, budget that money during the loan application process and most importantly, don’t forget to keep track of that payment history and consolidate those student loans! All these tips can be a lifesaver when finally applying for that loan and making that purchase for your dream home! Until next time, earthlings! Off into the cosmos I go!
I have wanted to create a blog for a long, long time. And in the past, I always had a million things get in the way. Most of those things were completely legitimate, like losing my daughter and both my parents. I also used to work for a government entity that consumed a LOT of my time, and I wasn’t in the right spot financially to finally dive back into real estate. But since things have recovered for me, I am NOW, and there are MANY things that I’m going to write about each week that will help thousands of individuals, just like you, to finally be able to buy a house! I have had some VERY unique real estate experiences over the past few decades, and I’m going to focus on one each week. You will find these experiences extremely helpful, whether you’re thinking about buying or selling a property, or buying/selling land in the future! Segment One — Real Estate Loans in General One of the most important things that I can tell you regarding real estate loans is that NOT all banks or lending institutions are created equally! For instance, there are direct lenders, mortgage lenders, banks and credit unions. Each of these entities do things differently! Lenders can vary in the type or amount of service they can or WILL give you during the homebuying process. They can vary regarding the interest rate that they’ll quote you, or they can differ on the type of loan that they will try to suggest for you! Additionally, there are different kinds of conventional loans, and there are different kinds of FHA loans. Therefore, you need to know what your loan choices are, so you’re informed and prepared! Otherwise, you might just assume that what a lender is telling you is going to be the best deal that you can get. NOT true!! Segment Two – Specifics of Rehab or 203(k) Loans There are several types of rehab loans. There are rehab loans that you can qualify for. There are conventional rehab loans, and there are FHA rehab loans. FHA’s are also known as 203(k) loans. Here’s just one of the differences — With a rehab or 203(k) loan, say you’ve decided on a particular house that you want to purchase. Your lender might tell you that you have a lot of bills, credit card debt, car debt, or student loan debt! Here’s what’s great about having a rehab loan; if you find a home that needs repairs, like a new roof, new windows, a new hot water heater, or anything else that’s super important for you to have done to your new home, then a qualified 203(k) lender can and will generally lend you up to $35k for necessary repairs, and the money that they’ll lend you is in addition to how much you qualified for in the first place! In plain English, say that you can only afford a $100,000 home at best. Well, with a 203(k) loan, you could find a home in that price range and then have necessary repairs done to it utilizing that 203(k) loan! Isn’t it nice not having to come out of pocket ahead of time for that $35k or so needed for repairs? SUCH a relief! So, after having all the repairs done on this hypothetical $100k house, you’re going to have a house that’s worth far more than what you paid for it originally! Out of this world, aye? With a 203(k) loan, you can pick out the house you want, and your lender will ask you to provide them with the following information that they need from you, including: 1. Your last two months’ bank statements; 2. Your last two years tax returns; 3. Your rental history for the past year; 4. Your employment status; 5. Any records of credit cards, car loans or student loan debt It is VERY important to get this information in a timely manner! The longer you take to get the above information to the lender, the longer it’ll take for you to close on your property! Time is of the essence in regards to collecting those records! If you’re serious about owning a home, then you need to be equally serious about getting any documentation or information to the lender when they ask you for it! Segment Three - Conventional vs. FHA Rehab Loans My advice? If you CAN, go with a conventional rehab loan before having to get an FHA rehab loan. Why? For one thing, there are more fees associated with an FHA rehab loan vs. a Conventional rehab loan. Additionally, an FHA rehab loan has stricter guidelines regarding the repairs, as compared to a Conventional rehab loan. What determines which kind of rehab loan you can get, you might ask? Your credit score is one of the biggest factors. If you have a credit score under 640 (or sometimes it only has to be 580-ish and above), then you probably will ONLY qualify for an FHA rehab loan, because the FHA credit score requirements are lower than those required for a conventional loan. A personal note: I am simplifying things a bit, because there are many caveats to all of this, but if you email me with any questions, I can point you in the right direction for more details! Segment Four - The Rehab Loan Process More essential info from me! If you get a rehab loan, you need to know that the process usually takes a few months for you to close, BUT, you don’t do any of your repairs until AFTER you’ve closed on your home! Isn’t that otherworldly?! Even more unbelievable, there will be a special 203(k) inspector who will go through the home thoroughly with you. It’ll cost approximately $500, and that inspector is worth their weight in gold because they’ll tell you at LEAST as much as any licensed home inspector would, and probably more! That inspector will go through that property with a fine-tooth comb and then give you a very detailed report. In that report, there will be items that you would HAVE to have repaired after closing on your home! There will be items that are SUGGESTED to be done after closing on your home, and then, if you still have enough money to work with, there will be what I like to refer to as “fluff” repairs, lol! These are repairs that aren’t mandatory or necessarily suggested that you have done to your new home, but rather upgrades or other things added to your home that are more of an aesthetic or cosmetic nature. An example of this section would be if you wanted to have a super nice stove or super nice refrigerator installed, the inspector might put down “replacing” the current ones in the home! Hopefully, you get the drift on what I’m saying! It’s hard navigating on this asteroid belt… XD Back to the topic at hand, with a rehab loan, you have up to six (6) months AFTER you’ve closed on that loan to have those repairs done. SO, even more essential advice from me is, don’t be lazy and wait until you’ve closed on that property to start looking for contractors to do the work! If you do, you’ll be totally screwed for having waited until the last minute to find contractors! Speaking of contractors, you’ll be given a spreadsheet with qualified 203(k) contractors who can do the work for you by your lender. Shop around, thoroughly research, and identify an approved 203(k) contractor within that spreadsheet that’s not going to flake on you and leaves you hanging on getting repairs done in time! Just because those contractors have been identified as being a qualified 203(k) contractor doesn’t mean that they’re not a flake, because there ARE times where they’ll juggle your job with their existing job(s), and you don’t want to have surprises like that, in terms of a contractor taking too long to do your repairs! On another note regarding contractors, ask your lender if you can have your uncle, daughter, or other family member do some or all of the repairs for you! There ARE obviously caveats to this, but BE SURE to ask your lender, so you’ll know for sure what they will and won’t allow in terms of who does your repairs! Segment Five - Construction Loans Next, we’ll discuss Construction Loans. Construction loans are fairly similar to the rehab loans that I’ve just described, but one of the big differences between the two is that with a construction loan, you have twelve (12) months to do any necessary repairs after you’ve closed on your property, whereas with rehab loans you have just six (6)! I also know that there are some construction loans out there where you only have to put 5% down, vs. 6.5% or 10%! My advice regarding Construction Loans is to ask your lender if you can have your closing costs wrapped into your loan, if your goal is to have as little as possible to have to shell out at the closing table, in terms of funds! Segment Six - Buying Land With a Rehab or Construction Loan! I know, I know; we’ve discussed a lot up until this point. These otherworldly concepts are difficult to process, but we’re not done! Guess what? Did you know that you can just find a piece of land and get either a 203(k) loan or a construction loan, and then have either 6 or 12 months in which to build that home? Talk about a big bang for your buck! Obviously, with this scenario, you’d better have your astronaut ducks in a row beforehand, in terms of already knowing who could build your home for you, etc. With either the rehab or construction loan, the timing of that loan is VERY important. For instance — If you close on that loan in November, chances are that no one’s going to be able or willing to build a house for you in the dead of winter, lol! Therefore, my advice? Have your closing sometime in February or later, depending on the area of the country in which you live, so you’ll know that the weather won’t be an issue for you in terms of having a home built. THEN, you will have more luck nailing down a contractor who can finish the job before winter hits! So remember - that’s one of the benefits of a construction loan— you have twelve months to get everything done, instead of just six months! Each of these loans have their benefits and also some limitations. The key to looking at either of these types of loans depends on who you know (who your contractor’s going to be), doing your homework ahead of time (lining up contractors, etc) and being extremely proactive. By the way, on the HUD.gov website, you can not only find the list of all the possible contractors in your area, but also what FHA loan guidelines there are, for those of you who will be getting an FHA rehab loan. That website will also tell you who all the qualified 203(k) lenders are in your area. Not just ANY lender can do a rehab loan! It HAS to be a 203(k) qualified lender! That website will also give you even more details on an FHA rehab loan! It’s an excellent resource to utilize! Thank you for reading my first post! I would truly appreciate a like, share, or subscribe if you could! In my next post segments, I will go into what I call “The Good, The Bad, and The Ugly” of credit cards and student loan debt, in terms of the things you need to be aware of before buying a home! Each of the segments that I will have are going to be VERY helpful and informative to you!! Well, earthlings, I hope this all helps those of you who have either wanted to know more about rehab or construction loans, or how those types of loans can benefit you during these times of tight housing markets and inventory! We aliens, can be quite informative!!
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