Tuesday, January 15, 2013

Better Than I Thought!

So, all of our hard work and efforts paid off!  Our credit jumped up.  Our debt to income ratio is right where I wanted it at the time being.  AND, we can qualify for more than we originally thought we would.

A dear cousin, Kari, has been giving Travis and I advice about building our credit and paying off our debts so that we can own a home.  The woman is a genius.  I am so totally clueless about this homebuying stuff.  However, Travis and Kari were on the same page the whole time, and they explained things to me in more simpler terms so that I could understand.  There were so many things I learned, I was amazed!

Kari pulled our credit reports and gave us an updated, accurate credit score for each of us.  She sat down with both of us and went through every page on our credit report, telling us what lenders look for.  She pointed out areas that we could fix, and she pointed out areas where we should leave things alone!  I was surprised that there was one thing on our credit report that she told us NOT to touch until after we buy a home.  If we messed with it, it could potentially hurt us because of when it will be reported - and she explained why it would negatively impact us.  This one thing was a collections account.  This debt was actually paid through the hospital between 2008 and 2011.  However, it was not updated on our credit report.  Even though that debt technically does not exist, the agency did not report it to the credit bureaus.  It is not hitting our credit negatively to leave it alone the way it is.  At first, I thought "OMG, that needs to be taken off!"  But Kari explained to me the moment that there is any activity on the account, it will come across as a negative impact on our credit and bring our credit scores down.  She told us to wait until after we buy a home to update it.

Kari also told us where we can dispute things on our credit report.  She told us the best places to talk to in order to handle credit disputes.  There was ONE medical bill that we paid off that had not been reported to the credit bureau.  Unfortunately, because we paid it, it's possible it will bring down our credit score.  But oh well, live and learn.  It'll be ok.  When Kari looked at our previous debts and saw that everything had been paid off completely, she told us we did everything right.  That was a relief to hear!  I was worried that I was messing up.  Kari reassured me that we are not in a terrible position, and because we have a good record of debts being paid in full - even though our credit scores weren't as high as I had wanted them to be - that will look more favorable because it shows we pay off our debts.

She ran our numbers through a program to see how interest rates would fluctuate between FHA and Conventional loans.  She showed us every possible outcome.  She told us the pros and cons for each type, and how they would affect us.  Ironically, where we are, monthly payments won't be much different for either type of loan.  When going through the possible outcomes and different costs of a home and calculating a different percentage for a down payment, we were looking at possibly a $7 - $30 monthly difference between the two.

She asked us if we had been searching for a home at all lately.  I told her one house in the neighborhood we live in that I have had my eye on.  She ran the numbers for both types of loans with the amount the house was selling for and she took taxes into consideration.  This is where I was super surprised.  A Conventional loan was $7/month more than an FHA, but it was also more than likely a better option for us.  Then, we took another home into consideration.  An FHA was a better option for us on that one!  I was really surprised how minor adjustments made a HUGE difference!

After going through adjustments and comparisons, Kari told us that we were "finance-able" where we currently are.  She told us that we could qualify for much more than we originally thought.  Granted, we told her that we were looking for a lower cost home and wouldn't mind doing repairs.  This one really surprised me:  she told us that with where we stand, we should NOT get a house less than $50,000 because insurance and interest would not work in our favor.  The lowest we can look for a house is currently $54,000 without getting hit with huge insurance costs and higher interest rates.  I never thought there would be a minimum amount for getting a better deal.  If you go too low compared to what you qualify for, the bank won't see it as a loan being worth it - and we could potentially get denied because - well - it isn't worth it to invest in that much with where we are.  Interesting....

Again, these were all "approximate" and fairly accurate simulations, but it let us know where we currently stand on getting a home.  Worst case scenario, Travis and I will be home owners in July of this year.  If we continue doing what we are doing, handle a few minor adjustments on our credit reports, we could be homeowners by March!  AHHH!!!

Kari then calculated taxes, down payment, closing costs, appraisal costs, fees, etc. and gave us a total that we need to save for.  It's more or less a "goal" amount for the least that we should save for, and we need to save up that amount and keep it untouched for 2 months.  Only small additions, like $20 or $50 from a paycheck that is easily traced, can go into the savings.

Kari is going to run a few more simulations with another program with a lender.  This is going to tell us where we could be in 3 months up to 6 months.  Kari is going to see how long we should wait to get the best deals, without having to wait forever and not move forward on buying a home this year.  The lender is also going to talk to her about our credit report and give advice on what she would like to see us do before she'd be willing to approve us for certain amounts.  Basically, a lender is telling us what we should do in order to get our credit scores up higher in a short time frame and also what is going to work in our favor this year.

I cannot tell you just how relieved I am!  Travis and I left there feeling so proud of our accomplishments and determined to do whatever we need to in order to put ourselves in an even better position.

Not going to lie, this homebuying process still looks like Greek to me.  But I am glad that I have Kari to hold my hand and mentor me through the process.  Travis is on the same page with Kari - so it makes me feel better knowing that he understands this more than I do.

Here we are... step number 1 towards buying a house is accomplished.  Now on to step 2!

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