Why buy a home . . .
The first question to ask is:
why buy a home? I live in a beautiful Victorian home in San
Francisco that was built in 1880. It's solid redwood, it's
cool. Shortly after I moved in in 1970 I stood in the dining
room and threw a rubber ball against the wall and caught it.
I did this 20-25 times. (I made 20-25 spots.) But it felt
great. When I was a kid I couldn't do this. But now I owned
a house and I was going to throw My ball against the wall of
MY house and make MY spots and that was it.
I think that that little kid
in all of us who doesn't want his or her parents or anyone
else telling us where we can put our feet and what color we
can't paint our walls is the real reason we buy houses. It
gives us a sense of freedom that we could never have at
someone else's house.
But What About the Money?
For most people buying is
more expensive than renting but the tax deductibility of our
mortgage expense makes the prospect of owning a bit more
practical. In essence, our Uncle Sam is making about a third
of our mortgage payment.
Once you have made the leap
and decided that you are going to buy a home you have to
find out what you can afford. That is where we come in.
Prequalifying
Prequalifying is a process
whereby a loan officer takes information about you, either
over the telephone or face-to-face and indicates how big a
loan of a particular type you will qualify for. The lender
would then give you a "prequalifying letter" which
is of considerable value in dealing with a Realtor or a
potential seller. Realtors and sellers are interested in
dealing with people whom they know to be able to get the
loan necessary to close the deal.
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How
credit reports work
Your credit can
determine what type of car you drive, what you can buy, and
even where you can live. It is important to maintain the
best credit report possible. Each consumer should check his
or her credit report and make sure it is correct.
To understand the credit
process you first need to understand what information is
contained in a credit report. Although the style, format and
coding may be different depending on which credit reporting
bureau is used, the typical consumer's credit report
includes four following types of information:
- Identifying information:
includes your name, nicknames, current and previous
addresses, Social Security number, date of birth, and
current and previous employers. This information comes
from any credit application you have completed, and its
accuracy depends on your filling out forms clearly,
completely and consistently each time you apply for
credit.
- Credit information:
includes specific information about each account
including the date opened, credit limit or loan amount,
balance, monthly payment and payment pattern during the
past several years. The report also states whether
anyone else besides you (i.e. a spouse or cosigner) is
responsible for paying the account. This information
comes from companies that do business with you.
- Public record
information: includes federal district bankruptcy
records; state and county court records, tax liens and
monetary judgments; and, in some states, overdue child
support payments. This information comes from public
records.
- Inquiries: includes
the names of those who have obtained a copy of your
credit report for any reason. This information comes
from the credit reporting agency, and it remains
available for as long as two years, as per federal law.
How is this
information used?
A credit bureau score is one type of credit score. It is
calculated from the information on your credit bureau file
at the time that the information was requested.
Consequently, a credit score is like a snapshot: It sums up,
at one given point in time, what your past and current
credit usage say about your future credit performance.
Credit scoring helps lenders
apply one set of rules to everybody. The sophistication of
today's models allow for certain behavior patterns. As a
result, a 20-year-old's credit history would not be compared
to 45-year-old's credit history. One reason these scoring
models are so widely used is because they can differentiate
between the credit patterns of individuals.
Scoring models and other
tools analyze data only -- using this data to predict future
credit performance. A scoring model contains a list of
questions and answers, with points given for each answer.
Information proven to be predictive of future credit
performance is used in a model. Here are a few examples of
what a typical model will (and will not) consider:
Information from your credit
application such as: how long you've lived at your address,
what is your job or profession, how much you owe. It will
also consider information pulled from your credit bureau
report, such as the number of late payments, the amount of
outstanding credit, the amount of credit being used, the
amount of time credit has been established. Credit scoring
systems do not consider race, religion, gender, marital
status, birthplace, or current address.
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