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What’s your credit score?

Before you begin the process of looking for your first home, you really need to know what your credit score is. Your “credit score” is like your life’s report card. It tells people how dependable that you are when it comes to managing money and paying back loans or lines of credit.

A credit score anywhere above 650 is not too bad. Anything lower than that needs some work. If you’re score is 760 or above, it’s smooth sailing for you! You will see, in Chapter 3 on Financing, when you approach a lender and ask them to let you borrow money they will want to check your credit score first.

Depending on that score, along with other criteria, they will decide how much money they are going to lend you, what your interest rate will be, or if they are going to lend you money at all.

There are many ways to find out your credit score, if you don’t already know it. You can utilize online services, if you’d like. You can also contact the credit reporting agencies directly.

The three main credit reporting agencies are:

•Experian: www.experian.com

•Equifax: www.equifax.com

•TransUnion: www.transunion.com

These are companies that monitor credit. Anytime you open new debt like a charge card, or a car loan it gets reported to those three credit bureaus. It also gets reported to them when you make late payments.

SIDE NOTE: You get one free credit report per year. Check with one of the credit reporting agencies listed above to find out how.

I think the best way to check your credit score is through the lender you ultimately choose to work with and that doesn’t count as your one free yearly report. I will talk about this more in Chapter 3.

What is your net worth?

Do you know what your net worth is? Your net worth is simply the difference between your assets and your liabilities. You assets being anything that is worth money or anything that makes you money. Your liabilities are basically anything that you costs you money or that you owe money on.

You can figure out your net worth by subtracting the sum of all of your liabilities from the sum of all of your assets.

An example of an asset would be a rental property, that you own, that costs you $400 per month to maintain but rents for $900 per month there for putting $500 per month in your pocket. Its money you earn, not money you owe.

An example of a liability would be a car loan that you owe $15000 on but the car is only worth $13000 or a credit card that you owe $1000 on. You are obligated to make monthly payments on these items and they don’t pay you anything in return. Its money you owe, not money you earn.

A car that you own outright, or owe less on than the car is worth could be an asset too. Assets are as simple as things that are worth more money than you owe on them. Don’t get stressed thinking you have to own a rental property before you can buy your first home. That is not the case. The point of this guide is to help you get into that first property.

You always want to try to have more assets than liabilities. It’s good for your wallet and looks really good to lenders.

What is your price range?

What price range are you trying to buy in? How much money do you want to spend on your new home? How much can you afford? You can get an idea by taking a look at your current monthly bills, adding your potential mortgage payment on an average priced home, and taking into consideration any new bills that may come with that purchase, i.e... home owners insurance, alarm system, FPL bill, utilities bills, cable bill, etc.

You can figure out possible mortgage payment easily by using one of hundreds of free online mortgage calculators. Just go to www.google.com (or whichever search engine you like) and type in “free online mortgage calculators”. I’m sure you’ll have plenty of choices.

You just plug in numbers like home price, interest rate, and the length of the loan (a typical mortgage loan is 30 years), and it pops out your estimated monthly payment. I used to look at these a lot and plug in different numbers. It was actually fun and motivational!

Remember, that’s just an estimate. When you get further a long and find a lender, they will be able to give you a better picture of what your payments will actually be.

SIDE NOTE: If you are buying a condo, townhouse, or some single family homes you may have to pay a monthly association fee to an HOA (Home Owner’s Association), on top of your mortgage, depending on where the home is located.

Why should you set a goal?

You should set a goal because when you set a goal it’s like taking aim at a target. If you have a target to aim at you are much more likely to hit the bull’s eye. Right? If you’re aiming at nothing, that’s probably what you’re going to end up with. Always have a goal.

To start out with it may be an amount of money that you want to save each month towards the down payment on your first home. Maybe you have some credit card debt you want to pay down. Maybe you want to pay off that car loan. Maybe you want to lose 25 pounds, gain 25 pounds, or finally start exercising. Whatever goal you set, just remember to write it down and keep it in reach. You will want to refer back to it often to keep yourself focused.

The reason for this is because during this process of saving, finding, and purchasing your first home, you will get discouraged. It’s going to happen. Don’t freak out and don’t give up. Don’t let that feeling last longer than a millisecond. When it happens, just take a look at the goals you have written down and remember why you started doing this in the first place. Your goals will give you renewed energy, focus, and they will help to keep driving you forward.

How do you organize a plan?

A plan is best organized when you write it down. Yes, just like your goal. You need to write your plan down. Your plan could be that you are going to take $100 out of each paycheck and put it directly into savings and not touch it for 6 months.

Take the time to look at the things that you need to do to reach your goal and write them down on a piece of paper and, again, keep it within reach. You will need to refer to this from time to time to remind yourself what you need to do on a monthly, weekly, or even daily basis in order to reach your goal. Just keep it together with your goal; you can look at both of them at the same time. Look at that! You’ve already streamlined your activities!

Your plan can include financial as well as personal goals. Getting ready to buy your first home is not all about money. It’s about getting your whole life in order. Maybe you want to add a new fitness and eating schedule to your plan.

SIDE NOTE: Remember, when your body gets the nutrition and exercise it needs, it works better. The same goes for your brain.

How are you going to stick to your plan?

This part may seem hard but it isn’t. I’m going to give you the secret right now. Are you ready? Here it is. You will stick to your plan because the day you right down your goals and your plan to reach those goals you will make a conscious decision to stick to your plan and reach your goals.

Wait a minute. Did I just say the same thing twice? What I’m saying is simple. You’ve just got to stick to it. Always remember that no one else is going to do it for you. It’s up to you. Just remind yourself of that anytime you are feeling discouraged or down about what you are doing. You’ve got to keep going everyday and believe that you can reach your goals because you can.

Look around you. How many people own homes? A whole lot of people own homes. How do you think they got there? It wasn’t easy for everybody and not everybody grew up with money or inherited a house. Most people worked hard for it. They planned, they saved, they sacrificed, they put their plan into action, and one day they were able to own their own home.

You just stick to your plans and you will reach your goals. Remember, it’s up to you and you can and will do it. Tell yourself this… “I don’t quit. I don’t give up. I don’t know how.” Over and over and over again until you believe it. I didn’t just make that up for this book. A good friend of mine gave me the same advice and I used it. I said that to myself over and over again, especially when the going got extra tough. I know it can work for you too!

How much money should you save?

You should save as much money as you need and more. I know that’s not what you wanted to hear but it’s true. After some research, you will discover approximately how much money you will need for a down payment on a home. After you know that, add in some extra money for closing costs. It really depends on the type of loan you are going to use, which I will talk about in more detail in Chapter 3 on Financing.

For the sake of an example, let’s say that you are going to use a Conventional Mortgage to purchase a $100,000 property. You will probably need about 20% of the purchase price as a down payment, so $20,000. You will also need approximately 3.5% for closing costs, so $3,500. So you are looking at about $23,500.

I want to tell you like it is because if I’m not upfront and honest with you, I’m not really helping you. Right? If you don’t have anywhere near that kind of money right now, I don’t want you close this eBook and walk away because there is good news! A Conventional Mortgage is by no means the only way to go. Plenty of other options exist and you can talk to your Lender, when you choose one, about the other loan programs available to you. Don’t worry. Read on!

Also, I’m quite sure that you will need to buy, fix, or even replace things after you move in. The Home Inspection, which I talk about in Chapter 7, will prepare you a little bit more for any additional costs but just know you will need some extra money.

Believe me when I say that something will come up. It just always happens. It’s part of home ownership. Don’t get me wrong, home ownership is an amazing thing but there are some costs associated with it. If you prepare for them though, you will be very happy that you did.

So first figure out how much you want to pay for your house, figure out how much of a down payment you’ll need, then add on, approximately, 3.5% for closing costs, then an extra 2 – 3% for any surprises. Then save save save! Like I said, Chapter 3 on Finances will help you a lot with this. Just remember that when you do the work up front and prepare, you’ll be happy and less-stressed in the long run!

How do you repair your credit?

Credit Repair is a funny thing. It really depends on what is wrong with your credit. Do you have debt you need to pay down that you can afford, are you behind on your bills or are you behind on loan payments?

If you’ve got a lot of credit card debt that needs to be paid off, just start putting a little extra money towards it each month. I know we don’t all have extra money to put towards credit card debt. If that’s the case, stop using the credit cards first. It might seem rough. Pick up the goals you wrote down and look at them again. It will help a lot!

See if you can spare any extra money each month. Maybe shop a little smarter at the grocery store, or skip buying that new pair of $100 jeans, or that new pair of $75 shoes. I’m sure you can find a way to save money if you want to bad enough. It’s all up to you.

If your debt gets bad enough and it’s just out of control, a Debt Consolidation company is always an option. You will hear mixed reviews on them. I had a good experience with one. I liked it because it was a non-profit company. They helped me contact my creditors, cut out late fees and interest, and consolidated my debt into one monthly payment. That allowed me to make one payment monthly to them and not worry about paying multiple creditors each month. They took care of paying my creditors for me. Eventually, I paid off all my credit card debt that way.

Some lenders will have restrictions on lending money to people that have used debt consolidation companies. They mostly want you to be out of the program for a given amount of time first. After that, you may be able to get approved for a loan. Don’t let this bother you. Like I said, I used one of these companies. I also got a home loan from a very reputable lender after my debt was paid off.

SIDE NOTE: If I was able to do it, and I was, then I know that you will be able to do it too!

Why shouldn’t you take on any new debt?

You shouldn’t acquire any new debt now that you’ve decided to move forward with your goal of owning your first home. Why is this? It’s because new debt is exactly that, new debt. Why do you want to take on more financial responsibility when you are just now trying to put together a plan to get yourself in better financial shape? Does that make sense?

Think about it. If you are trying to pay off $10,000 in credit card debt in order to be able to purchase a new home, why would you go to a local electronics store and open a charge card with a $2000 limit in order to get that new 46 inch flat screen TV for the living room in your apartment. Trust me, it’s not worth it. I know from experience.

Stay focused on your goals and your plan. Resist the urge to take on new debt even if it’s for something that you really want. You have to ask yourself, “Do I really need this?” If your answer is “Well no but I really want it.” then DON’T BUY IT. It’s pretty simple. Once you have decided to purchase your first home, do not take on any new debt until after you have closed on your home. You’ve got to be in charge of yourself. No one is going to do this for you. It’s up to you.

I would like to add to this by saying that sometimes things happen in life that we have no control over like illness, accident, loss of employment, injury, etc. I wish you all the best and I hope nothing like that happens to you or anyone that you know or love but if it does you need to take care of that first. I am strong believer in putting family and loved ones first.

I am also a strong believer in sticking to your plan and working toward your goals but remember this isn’t all about money. It’s about balancing, getting your whole life in order, and moving forward.

If you or your family or your loved ones are in trouble, your life is not in order. Right? You’re plan will still be there waiting for you to finish it. It’s not going anywhere. I wanted to share that thought with you.

How are you going to track your progress?

Tracking your progress is as simple as watching the money in your bank account grow. I mean, if your goal is to save $6,000 in 12 months time and you are really sacrificing and putting $500 per month into your savings account, just do the math. $500 X 12 months equals $6000. You’re right on track.

If you can’t put that much money away each month, don’t worry. Most of us can’t do that. Whatever your goal is you can apply the same formula to see where you stand. You can also use a money management program on your computer that allows you to keep track of your money and set goals for financial growth. Some of these programs are even web-based. Some will send you email alerts to let you know what’s going on with your money. One example is www.mint.com. I like it because it’s free. You can use whichever program you like.

You can also buy a wall or desk calendar, or day planner and write it down in there. Try different methods until you find one that works best for you.

Let’s Re-Cap!

In Chapter 1, we talked about the following important topics:

•Know Your Credit Score

•Know your Net Worth

•Know your Price Range

•Set a goal

•Organize a Plan

•Stick to your plan

•Save money

•Repair your credit

•No new debt

•Track your progress