Real Estate Realities
LOS ANGELES—It’s always exciting when you hear someone decide to buy a house, whether it’s their first one or their 10th one. The passion and excitement in their voice about finding a new place to call home is contagious and as a real estate pro, it makes you glad to be in this business.
Making sure you qualify for a loan should be tops in your agenda. As with any potential investment, it’s always a good idea to do your research. Find a real estate broker like myself tell about your needs and ask to see if he can get you pre-qualified for a loan. This first step is crucial because it makes all subsequent steps easier. You don’t want to go to a broker and ask him to find a property only to find out later that you’ve wasted your time and his time looking for a home that you’re not qualified to purchase.
This is where planning and preparation comes in. By following some important tips, you’ll be able to qualify for a loan to buy that dream home you’ve been thinking about for all these years.
1. Save money. You’d be surprised how many real estate deals are NOT made because the prospective buyer doesn’t have the funds for a down payment. Even with the government’s FHA loan program, that requires just 3.5 percent down, some potential buyers are unable to make the down payment. This program is truly a gift from the government. They literally take on all the risk by allowing you to put just 3.5 percent down.
2. Check your credit. Find out what your credit score is to see if you need to work on improving it or if you’re ready to go. I check my credit score once a year just to make sure all is good, but if you listen to television commercials from companies offering “free credit reports,” you may end up purchasing a service you don’t need. The rule is if you haven’t had any credit problems, you don’t need to worry, but if you had some credit hiccups in the past, it’s good to check to make sure. By law, the three major credit reporting agencies are required to give you a free credit report a year at your request. So take advantage of that. In today’s economy, credit scores are extremely important in deciding who gets a loan and who doesn’t.
3. If you own your own business, I encourage you ease potential problems with lenders by hiring a payroll firm. With a payroll company, you will receive regular pay checks, making it easier for the lender to determine how much money you’re making without wading through a sea of income tax documents, etc. A company like Payroll Centric here in Los Angeles or others, will handle your payroll and provide you documentation that you can provide to the lender establishing income.
4. Reduce or eliminate your credit card debt. Credit cards are great in an emergency, but they can become a major burden if you start using them regularly and accumulating a large debt. These debts will definitely count against you when you apply for a home mortgage and they truly could become a deal breaker. By reducing your debt, you improve your chances with lenders and improve your credit scores.
5. Avoid major purchases. Taking on debt while you’re trying to get a mortgage loan is a bad idea. Forget about Black Friday sales or Red Light promotions and anything else that’s meant to entice you to get that giant Plasma TV of your dreams. Until your mortgage loan is approved, forget about it. It wasn’t that long ago that a client decided to buy a washing machine before his loan was approved. It turns out the lender checked his credit one last time before they signed off on the loan and they ended up rejecting him. It was a sad situation which proved how much care you need to take when it comes to getting financing.
It’s also important to know that you can always re-apply for a loan if you’re rejected that first time. Find out what led to the decision and work on improving that situation, such as rebuilding your credit score, if that was the problem, or getting rid of that heavy debt that you have. So be sure to consult with a real estate pro to see where you stand. A little time and a lot of effort on your part will likely pay dividends in that second go-around.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at 310 450-4488 and at firstname.lastname@example.org.
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