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5 Things To Do NOW If You Want to Buy A Home In 2012

As always, the good people over at Trulia.com offer us sound advice about the ever-so-shaky real estate market. Bay Area real estate agent Tara-Nicholle Nelson has this to say for those who are thinking of taking the big leap in 2012:

At this point in December, it can start to feel like the New Year – along with all our hopes, dreams, wishes and expectations for it – are barreling down on us. Personally, I’m a rabid Resolution-setter, and I have a pretty strong track record of making New Year’s changes actually happen – and stick.  But what I know after years of using the New Year as a great excuse to set and meet some goals is that it’s very, very helpful to get a head start, ramping-up to new habits, behaviors and target goals achievements starting in December.

If you’re one of the millions who has an eye on 2012 as the year in which you’ll buy a home (first or not), here are five things you can do now to put yourself on the right path:

1.    Check your credit. Take my word for it: there is no bad surprise worse than a bad credit surprise. Okay, maybe there is one thing worse – a credit surprise you receive while you’re in the midst of trying to buy a home!

Recent studies have revealed that a record high number of real estate transactions are falling out of escrow, and that credit “issues” are a leading cause of these dead deals. Your best chance at catching and correcting score-lowering errors and other derogatory items before they destroy your personal American Dream is to start checking and correcting while you still have time on your side.

2.    Do your research. The more rapidly the real estate market changes, the more it behooves smart buyers to study up before they jump in.  And now’s the time – you can start doing online and in-person research into topics ranging from:

·    Target states, cities and neighborhoods. Whether you’re relocating or simply trying to narrow down the local districts to focus on during your 2012 house hunt, December is a great time to start your online research into decision-driving factors like tax rates, school districts, neighborhood character and even prices in various areas. Resident ratings and reviews sites like Trulia and NabeWise can help you make the neighborhood-lifestyle match.

Once you narrow things down and start speaking to local agents, ask them to brief you on the local market dynamics, including how long homes typically stay on the market and whether they generally go for more or less than the asking price, so you can be smart about how you search. (And yes, Virginia, there are areas where homes sell for more than asking, even as we speak!)

·    Real estate and mortgage pros. If you don’t already have your pros picked out, now is the time to get on the horn or drop an email or Facebook message to your circle of contacts, asking them for a referral to a broker or agent they love.  Follow up by: checking whether these pros are active in answering questions on Trulia Voices, searching for their name and seeing what sort of feedback on them you can cull from the web, then giving them a ring and launching a conversation about whether you and they might be a good partnership.

·    Short sales and REOs. Distressed property sales are not for the unwary. If you want to target upside down or foreclosed homes, or are planning to house hunt in an area where many of the listings are described as short sales or foreclosures, get educated about what you can expect from a distressed property purchase transaction before you get your heart set on a short sale.

·    What you get for the money. Online house hunting is a powerful tool – especially when it’s cold and wet! But there comes a point in your house hunt where you’ve got to just get out into the actual physical homes you’re seeing online in order to get a strong, accurate sense of what home features, aesthetics and location characteristics correlate with what price points.

·    Mortgage musts. You can read a bunch of articles about mortgages and get yourself pretty far down the path toward qualifying for a home loan, but you can only get a personalized action plan for a smooth road ‘home’ by talking with a local mortgage broker and having them assess your basic financials.  They might say you need to move funds around, pay a bill down or off or produce some sort of documentation from your employer.  And the time to start all that is now.

3.    Fluff up your cash cushion. So, you’ve saved up your 3.5 percent down payment. Perhaps you saved a little extra for closing costs.  Or maybe you’re even one of those uber-aggressive 20-percent-down-ers.  No matter how much you’ve saved, you’ll find that you could use more once you activate your home buying action plan. Mark my words – after closing, you’ll crave extra cash to do some repairs, upgrade a couple of things, buy appliances or even just to hold onto in order to minimize your anxiety about depleting your savings!

So, if homebuying is on your personal 2012 action plan, don’t go hog wild on holiday gifts. Instead, wait until next year and give yourself the gift of a home.

4.    Shed some stuff. Sell it. Donate it. Give it to relatives who’ve always coveted it.  Just get rid of it. If you do it before year’s end, you can kill three birds with one stone: (a) getting some cold hard cash to go toward your savings, (b) getting some tax receipts so you can deduct the value of your donations in January, (c) minimizing money spent on holiday gifts for loved ones and these two bonus birds – clearing the mental clutter that physical clutter creates and prepping for your move in advance.

5.    Sit very, very still. Sometimes, the best way to further our goals is to stop tripping ourselves up.  In that vein, commit right now to refrain from making any major financial moves until you buy your home.  Don’t quit your job to start that personal chef business (yet), don’t pull a bunch of cash out of your savings account (without getting clearance form your mortgage pro first), and don’t start buying cars and boats on credit – even if you do love the idea of putting the red bow on the car you give your wife, like in the commercials.

I assure you, the bow you’ll be able to put on that house or condo will be much bigger, redder and more tax-advantaged!

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Charge It!

Credit cards can be tricky but useful when yielded correctly. They can often get one in a financial jam ia misused but they can also help raise your credit score when used strategically. Here are a few tips to help you choose the best credit card for you – and use it wisely:

Check your credit report before applying for a card. Read your credit report for account inquiries, delinquencies, and your credit to debt ratio. These are all factors that can affect a bank’s decision on approving you for a card. Too many inquries and delinquencies tell a bank that you might not be responsible with handling debt. A credit to debt ratio that is too high is a sign that you live outside your means and spend more than you make. However, establishing more credit can also lower your credit to debt ratio. Also, check your credit score, as it is taken into account as well.

Do your research. Visit bank websites and read what they have to offer with their cards. Look closely for the APR or Annual Percentage Rate because this will tell you how much interest will be calculated on any balance you carry. Look for annual fees since many cards carry them, some as much as $450 a year! Look for rewards and point systems. Many cards will give you a percentage of cash back as you spend or point/rewards towards future purchases. But be careful – rewards can tempt you to use your card more. Don’t be fooled and spend more than you can afford! This will only benefit the creditor and mess up your credit, making it difficult for you to establish more in the future.

Read consumer reviews. No information is better than first-hand experience. Visit websites like Daily Markets and Credit Karma to read reviews about credit card strengths and weaknesses. You can also visit forums on sites like Credit Karma and read people’s praises and complaints about their cards.

Don’t apply for credit at the same bank more than once in a month. If you do, chances are that second application won’t get approved but the inquiry will show up on your credit report. After approvals, wait at least six months before applying for more credit or requesting that current limits to be increased.

Be safe. Many credit card companies now offer account protection, such as not holding you responsible for unauthorized charges. Some also charge a small fee to suspend payments in case of job loss or some other unfortunate life event. Take advantage of these offers to keep your credit in good condition and protect yourself.

 

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Good Credit

I can’t count the times I’ve had the conversation about opening credit cards in college with friends and the trouble it got us all in before we were 21. For many of us our parents forewarned us of the drama credit card debt would cause us, but our non-existent college budgets made applying for credit a temptation we couldn’t resist. Credit card companies know this, and make it their business to camp out college campuses across the nation to prey on poor college students.

However, not every young person is fortunate enough to be forewarned about the dangers of opening a credit account without the proper knowledge of how it works. Financial illiteracy is typically passed down from one generation to the next, leaving a long trail of bad correct in need of repair.

What I didn’t know then that I understand now it what a process it would be for me to develop good credit after damaging it so badly, and how important good credit is in relation to buying power. Nothing beats cash and a good savings account, but good credit is next to gold when it comes to making certain purchases. Take the following steps with your own credit to master management of it:

Read your credit report. It’s a bad habit to avoid your credit report, especially when you know you’ve ran up credit or have paid bills late. Read your credit report thoroughly especially when you have established bad credit so you can determine how to repair it. Look for misreported account activity, negative information and account alerts to see where you stand. Everyone is given three free reports a year through annualcreditreport.com. a website sponsored by the three credit reporting agencies (Experian, Equifax, and Transunion). You may also purchase your credit score for a mere $8.

Understand your FICO (credit) score. FICO (which stands for Fair Isaac Corporation) and is the number used by lenders to determine your credit worthiness (or the likelihood of you paying your debts). FICO scores range from 300-850 and the lower your score, the greater a risk lenders will consider you. Factors that affect your credit score are: payment history, credit utilization, length of credit history, types of credit used, and recent searches for credit.

Understand the difference between the types of account listed on your credit report. The types of credit accounts that are listed on your credit report are:

Mortgage: A loan given for the purchase of property.

Installment: The type of credit that has a fixed number of payments. Student loans and car payments are examples of installment accounts.

Revolving: The type of credit that does not have a fixed number of payments, as the amount of credit can increase or decrease as funds are borrowed and repaid. Credit cards are an example of revolving credit.

Consumer Finance: Consumer finance refers to alternative financial services that consumers depend on. Payday loans and rent-to-own agreements are examples of consumer finance.

The best debt-to-credit ratio to manage is around 30%. For example, if you are given an $1000 credit limit, and you keep your limit to $300 or less, you will maintain a good credit score. Once you cross the 40% limit, your credit score will start going down. It’s can be tempting to spend more than half of the credit extended to you, but keep in mind that the more you spend, the more challenging it will become to get credit extended to you elsewhere.

Pay more than the minimum required amount towards your debts. Even if you can only afford $5 over the minimum, do it. Paying just the minimum amount on account will have you paying the maximum in interest! Save yourself some time and money and pay as much as you can afford.

Avoid credit consolidation companies. There are many companies that offer to help you bundle your debt into once nice monthly payment. As attractive as it sounds, utilizing one of these companies will leave a negative mark on your credit report. It says to lenders that you aren’t responsible to pay your bills on your own.

Don’t close any accounts. Even after you’ve paid off an account, don’t close it. If possible, use it sparingly when needed. Closed accounts also negatively affect your FICO score.

Pay your bills on time. Your credit report tracks how many days late your payments are from the due date and keeps record of how often this happens. Paying your bills on time will help you raise your FICO score by showcasing a history of you paying your debts as agreed.