By Mr. Free Spirit
August 30, 2016
Have you retired? Are you ready for retirement? Are you really?
Before you read my article, please read the latest article written by the publisher of Black Men In America.com. The article is “How Do Black People Spend Their Money?” This article is scary and will stimulate your thoughts. Why aren’t more black people prepared for retirement? Before you answer that question read the article and learn the facts and some theories about how many black people (not all black people) spend their money. Find out if you are guilty of some of these spending habits. The article for September is about housing —“How To Buy A Home In The Retirement Phase Of Your Life.”
According to new lending guidelines from Fannie Mae and Freddie Mac, buying a home is expected to be easier in the new year than it was in 2014. One of the most important changes for prospective home-buyers has to do with how lenders will view minor credit blips when reviewing mortgage applications.
If you’ve had a late payment or two in the past, they’re less likely to count that against you when it comes to securing financing. That doesn’t mean, however, that you’ll automatically qualify for a home loan if you have a score that’s just okay. If buying a home is in the cards for 2015, here are five things you should be doing now to give your credit a boost:
- Take a look at what’s in your report
If it’s been awhile since you checked out your credit report, now’s the time to give it a closer look. You’ll want to get copies of your report from each of the three major reporting bureaus (Equifax, Experian and TransUnion), as the information may be inaccurate or may vary. If you think your credit’s in pretty good shape, you can do this about two to three months before applying for a mortgage. You’ll want to give yourself six to nine months if you know there are some major negative marks you’ll need to clean up.
When you’re reviewing your reports, there are some specific things to pay attention to, starting with the kinds of credit you have. Ideally, there should be a mix of installment loans and revolving accounts, since each of them are weighted differently when it comes to how your score is calculated. If you’ve only got one or two credit cards, you might want to consider adding a small personal loan to even things out a bit. Just keep in mind that you don’t want to go crazy applying for new loans or lines of credit, since that could actually cause your credit score to go down.
The next thing to focus on is how old your accounts are. The longer your credit history is, the better since it demonstrates to mortgage lenders that you know what you’re doing when it comes to things like loans or credit cars. If you’re tempted to close any old accounts you don’t use, don’t–that can actually work against you when you’re trying to buy a home.
- Correct errors and mistakes
While you’re browsing around your report, you want to be on the lookout for any signs of suspicious activity on your account. If you see a credit card that you don’t recognize or you’ve got balances on cards that you don’t normally use, that’s a big red flag that someone may have stolen your information. You’ll need to contact your creditor and the reporting agencies to issue a fraud alert to prevent additional fraudulent charges.
You’ll also want to check for errors or inaccuracies, such as a balance that’s being reported incorrectly or payments that weren’t applied properly. If you spot something that doesn’t seem right, you’ll want to initiate a dispute with the agency that’s reporting the information. Getting even a seemingly minor error corrected or removed altogether could mean the difference between a so-so credit score and one that’s good enough to qualify for a home loan at a great rate.
- Stay on top of payments
By and large, your payment history has the biggest impact on your credit score. When you’ve got a bank that’s considering lending you hundreds of thousands of dollars to buy a home, you need to be able to show them that you’re capable of making your payments on time, every time. While nothing but time can diminish the negative effects of a late or missed payment, you can and should be making sure everything’s paid up by the due date going forward.
- Get your balances in check
Aside from your payment history and mix of credit types, another thing lender take into account is your debt utilization ratio. This is basically the total amount of debt you owe compared to your overall credit line. If you’re carrying balances on an installment loan or credit cards, you’ll want to work on knocking those down as much as possible before you embark on your home-buying journey.
When you’ve got multiple cards that are maxed out or close to their limit, it sends the message that you’re not exactly responsible about using credit wisely. You should be aiming for a debt ratio of 30%-40% so if you’re way above that, paying those balances down needs to be a top priority.
- Consider whether it’s worth it to settle up old accounts
Having delinquent accounts or collections on your credit can take a serious toll on your score but over time, the impact these accounts have lessens. Once you reach the seven-year mark, these old accounts should drop off your report entirely. Paying them in full can help your score in certain situations, so it’s something you need to consider if you’re in the market for a new home.
For example, the new FICO 9 scoring model puts less weight on medical collection debt that’s been paid in full. If you have some lingering doctor bills, ponying up the cash to zero out the balance could benefit you in terms of your score. On the other hand, if you’ve got a debt that’s close to the drop-off point, you may be better off waiting it out and delaying your home purchase a bit. Ultimately, you have to consider what your time frame is for buying and how much clearing those old debts will really help you in terms of the big picture.
Oh, you are not finished. What is your age? Do you really want to buy at you age?
Read below: Is it Better to be Buying or Renting a Home?
When Renting Instead of Buying Makes More Sense!!!
When it comes to the question of renting vs. buying, here are words you will hear few real estate agents mutter: Not everybody should own a home! Based on age or some people aren’t cut out for home ownership, for a variety of reasons. Are you one of those individuals who should rent and not buy? Here are a few ways to tell.
Bad Credit Report
Does your credit report tank? If your FICO score is below 620, you’re not going to receive a good interest rate for a loan and, in fact, that kind of score could dump you into the hands of a predatory lender.
Not a good sign.
- If you want to buy with bad credit, you should work on fixing it before applying for a loan.
- Four late payments is enough to disqualify you from obtaining a loan.
- You can order your credit report free online.
High Debt Ratios
Lenders consider two ratios: front-end and back-end. The front-end is your mortgage payment, plus taxes and insurance divided by your monthly salary. The back-end adds your monthly debt payments to your PITI payment before dividing that total figure by your salary. A 50% debt ratio is a high ratio. A high debt ratio means you may not qualify for the loan. If you should find an unscrupulous lender that is willing to fund such a loan, you may not be able to afford to feed yourself, even if you eat dirt.
Job Instability or Relocation
How secure is your job? A high-rolling Sacramento buyer purchased a home in Midtown. His mortgage payments were $3,500 a month, which was a lot for a 25-year-old.
However, that payment was affordable while this guy was earning an annual $120,000 salary. But when he lost his job, he also lost his home to foreclosure.
- Is Your Job in Jeopardy?
Is your company laying off? Could you be fired and, if so, how hard would it be to get another job right away? Unemployment compensation is rarely enough to cover mortgage payments.
Are you likely to be transferred to another city within the next two to three years? If you had to sell due to a job transfer or you going to retire your current property would need to appreciate at least 10% to cover the cost of selling; otherwise, you would lose money on the sale. When you buy a home, you should plan to stay put for a while.
All homes require upkeep and maintenance. Not everybody has the where-with-all, much less the desire, to tackle home repair projects. In addition, many first-time home buyers cannot afford to hire a professional to fix things that break. Experts suggest you set aside 5% of the purchase price to cover maintenance and repairs when you buy a home.
When Renting Costs Considerably Less
If your mortgage payment would be triple the amount (or more) you would pay for rent, it might not make financial sense for you to buy. For example, if it would cost you $2,000 a month to rent what would cost you $6,000 per month to own, does it make sense to pay $48,000 a year more to own a home?
If you are in a 30% tax bracket, you might not come close to recouping the difference you paid. Say your deductible expenses are $5,000 a month; 30% of that is only $1,500, which would be your true tax savings per month. Would you spend $6,000 to save $1,500?
Wake up and think about your quality of life. As you get older things slow down, you are not as fast as you were, walking up and down stairs becomes an effort of labor, cutting the lawn is no longer fun.
Hopefully, it does not happen but you encounter health issues. Again, it’s a no brainer.
Again, read the latest issue “How Do Black People Spend Their Money?”
Coming in September – THE BLACK BOATERS CLUBS ACROSS THE UNITED STATES WILL HAVE A REUNION IN THE BRITISH VIRGIN ISLANDS (BVI). It will be in the July/August 2017 time frame. Each month an article will be published to keep you updated. Black Men In America.com will have a boat in this flotilla. Be sure to follow us throughout the year. You can even come out and meet Mr. Free Spirit.
Let me leave you with this thought: “You Can Be Comfortable or Courageous, But You Cannot Be Both.”
Feel free to scroll down to the bottom of the page and leave a comment.
Until Next Time – This is Mr. Free Spirit and I’m out!
Photo credit: Couple counting money — Image by © Jose Luis Pelaez Inc/Blend Image/Blend Images/Corbis