Lilac City Momma

Budgeting

How to Prepare Your Credit to Buy a Home

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Owning a home is the great American dream, but with bad credit, such a fantasy can seem more like a nightmare. Most conventional mortgage lenders will insist upon a credit score above 700 to secure a mortgage. Meanwhile, the FHA offers loans to individuals with scores as low as 540. A low score could require a higher down payment, a steeper monthly insurance rate, or result in declined funds.

If you’re worried about a low credit score standing between you and your dream home, take a look at these helpful tips on how to repair your credit and budgeting before applying for a mortgage.

Know Your Score

Every 12 months you are entitled to a free copy of your credit report. Equifax, Experian, and TransUnion are the three credit bureaus that offer access to this information. It is important to check each of these, as not all accounts report to the bureau. Keep in mind, you’ll want to make this inquiry atleast 6-9 months prior to applying for a mortgage. This will allow you to repair any issues and set aside time for the bureau to reflect those improvements. Late payments, bills that went to collection, and other derogatory items should be dealt with accordingly.

Make Amends

Scrutinize your credit report for errors. If the document fails to report paid bills or collections, you need to file a dispute as soon as possible. If you notice any unknown accounts or activity, you may be a victim of fraud or identity theft. If the resolved issues fail to make it onto your credit report in time, you can apply for a letter of goodwill from the credit institution. Such documentation lets your mortgage lender know the issues are outdated or resolved. Whatever you do, check your report at least once a year, as some issues have a statute of limitations.

Keep the Old

Good standing, older credit lines are a great asset. A long history of outstanding credit looks good to lenders. Plus, since closed credit cards remain on your credit report for up to a decade following the closure, eliminating a card you no longer use or with an imperfect account record isn’t going to work in your favor. Moreover, an available but unused credit card can improve your balance-to-limit ratio.

Optomise Your Balance-to-Limit Ratio

Your balance-to-limit ratio reflects what portion of your available credit you are utilizing. In most cases, lenders look for applicants who have a 15% or less ratio. If you can stretch your limits prior to applying for a mortgage, a 10% ratio is even better. Overall, lenders don’t want to see clients who are overextending themselves. At the same time, suddenly opening an extra line of credit to boost your current ratio isn’t going to work either. Each time you apply for a line of credit your report shows a hard inquiry. Too many of these and you’ll likely see your score drop.

Balance Your Debt-to-Income Ratio

Another important factor in approving your mortgage is your debt-to-income ratio. You want this number to be right around your balance-limit ratio. While it is tough to skew the numbers, reducing your spending and limiting large purchases will work in your favor. Use an online calculator to determine your ratio and then make a plan to chip away at your debts or reduce your annual spending. After you’ve purchased your home, this number will rise significantly. However, once you’ve secured a mortgage, you won’t have to play it as tight.

Make Wise Decisions

This last step is an obvious one, but still worth noting. Adulting isn’t always easy and it often means sacrificing a fun purchase for security or, in this case, a permanent home. If you’re ready to enter the world of homeownership, you probably already realize this. However, a hard look into your personal finances can be a healthy reminder to plan for the future. Moreover, you may want to seek the guidance of a professional financial advisor, who can help you to better organize your money.

In Conclusion

Securing a mortgage is imperative when it comes to purchasing your first home, but, for many, sub par credit can stand in the way. By taking the time to fix and maintain your credit history, you’ll be on the road to homeownership and a promising financial future.

Jessica Kane is a professional blogger who writes for Faxage a leading company that provides Internet fax service for individuals and businesses.

Tips on Back to School Shopping on a Budget

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When vacations are over, it’s that dreaded time of the year when your kids start bugging you for their back to school supplies. When we were young, all we needed was a bag pack, a book and a pencil. Today, a kid’s school supplies includes everything you can think of- pencil, eraser, sharpener, ruler, color pencils, markers, glue, paper clips, at least 3 binders in different colors, scissors, and the list goes on and on.

The problem with purchasing these back to school supplies is that they can be very expensive. Of course, before school starts, you will come across all kinds of sales that entice you to buy school supplies in bulk but not all of them are as good as they seem. This is the time you need to teach your kid the importance of budgeting or they will likely spend their allowance on things they don’t need.

Following are some tips that will help you shop under budget and save for the next year:

1. Make a List

No matter how appealing that sale looks, don’t go for it. If you want to shop under the budget then make a list of things that you “need” to buy. This way you can avoid buying things that your kid already has. Create a checklist and then proceed to the next step:

2. Start Your Shopping At Home

It’s time to go for a hunt – school supplies hunt! You have no idea how many rogue pencils, erasers, color pencils and other supplies you will find lying around in your house. Roam around and see. If you do find a handful of half-used supplies, then it’s time to do a little bit of recycling. Take out all the binders that you have in the house and see if you can tear some pages and make it as brand new.

Collect everything you find and cross the items from the checklist. Add the remaining items on the checklist that you missed and keep them in storage. Once you have an idea about what you need, you can now go shopping.

3. Shop in Office Supply Stores

School supply sales are quite deceiving. They can be expensive because you are forced to buy in bulk. To save money, shop instead in office supply stores, Costco or thrift stores that also sell in bulk, at a discounted price. You can find most of the school supplies here at fairly reasonable rates.

Say you are buying a simple binder in $0.50 and your kid insists that he wants the one with Captain America printed on it that costs $1.50. Instead of giving in to his demands, tell him to pay the extra $1 from his allowance. This way, not only will he learn to save, he will also understand that a generic binder serves the same purpose as a fancy one.

4. Go Online

While buying branded stationery can be quite expensive, you will find several coupon deals on Facebook and twitter when school returns. These deals are quite cheap and allow you to surprise your kid with new and high quality school supplies. The more loyal you are to these brands, the more chances you have of winning their gift coupons.

Kids can create quite a ruckus if their wants are not met. So, try these tips and you will be able to buy generic and branded school supplies, while staying in your budget.