Financial problems can be a puzzle to figure out and fix. When’s the last time you checked your credit reports? A lot of us don’t think much about our credit until it’s time to purchase a home or a car and then it may be too late. Avoiding these five common financial fiascos can save you money and headaches.
Not Knowing Your Credit History
“Not investigating whether the credit problem is accurately reported on the credit report; 95 percent of them aren’t,” said John Ramsay, Senior Loan Officer at Mortgage Partners Inc.
Bankruptcy, for instance, is frequently reported incorrectly. Bureaus will still report that a person owes money, even if it was paid off in the bankruptcy, but somehow it doesn’t show up as resolved.
If you know you have a credit problem, fix it now if you can.
Not Obtaining a Written Estimate
When borrowers are shopping around for loans, one of the biggest mistakes they make is not asking for a written estimate. It’s hard to compare loan programs if you don’t have them in writing. There are many variables between loans and you can’t compare them if you don’t know all of the conditions.
It’s a red flag if the lender won’t give you their estimate in writing. If you get several written estimates you can compare them.
Not Having a Seasoned Downpayment
While every lender has their own periameters, some require that the downpayment money be “seasoned”. This means that the money has been in an account in your name for a required amount of time. This is very important, especially when a buyer is getting a gift from parents, a family member or anyone else. Banks like to see that the buyer has had control of the down payment for at least a couple of months prior to closing escrow.
Many lenders say “you can’t have a 100 percent gift, you have to have some of your own money”, (Ramsay said) . Buyers should have the money in their own account, even if it was gifted to them. If it’s gifted just days before the buyers wants to borrow money from the bank, it can make the loan more expensive in the long run.
60 days is the minimum if you want to do business with most banks. If you have the cash and the down payment isn’t seasoned (in your bank account), then it’s likely you won’t get the best rate.
You can avoid the whole process by just seasoning the down payment and being able to show two bank statements with the money in your account.
But, if you are also selling a property and the money for the downpayment is coming from the settlement on your old house, the money would not have to be seasoned and the lender would be aware of the source of the downpayment.
Thinking That “100 Percent Financing” Means No Money Out of Pocket.
Buyers always have to pay interest, taxes, and insurance — in the closing costs. They always have to be paid by the borrower; that’s a legal requirement.
So, even if you plan to do a zero down loan, buyers still need to have enough money to pay for these other costs. You must have a reserve fund.
The bank will not want to make a loan to some one who it appears has spent their very last dime to buy the house. It makes them nervous about the mortgage being paid in the future.
Thinking That Your Bad Credit will Stop You From Getting a Home.
You have to have a minimum credit score to do 100 percent financing, but with a down payment, a lender can get you some type of financing with a 500 credit score, which is a very low score. That’s usually a result of bankruptcy, foreclosure, car repossessions, charge-offs or other bad credit reports from creditors.
But, if there’s a substantial down payment available, it makes the enders more comfortable with loaning the money.
Also keep in mind that if you have bad credit, a co-signer won’t help, but a down payment might.
Co-signers don’t make “bad credit” “good credit”; they make No Credit Some Credit.