I have been speaking with a lot of people lately about credit scores. Many say they are “working” to raise that all-important number. Some have gone so far to enlist the help of a credit repair agency. But, just how important is this number when it comes to the real estate process? Is it really just about your credit score?
Linda wants to buy a house. As a matter of fact, Linda told me she already knows what kind of home she wants. She also knows that her credit score needs to improve before she can even start looking for her dream home (and she is right). While it is great to have a goal and begin working toward it, Linda has missed the bigger question: Will she be able to afford the home she wants? She thinks she can, but Linda hasn’t spoken to a mortgage professional. She thinks it’s all about the credit score.
Many people don’t realize that your score only determines if you are credit eligible. What determines the payment you can afford is a little thing called the debt-to-income ratio. This number is the total of all the monthly payments on your debts (minimum payment on credit cards, student loans, car loans, etc.) divided by your gross monthly income. An experienced mortgage professional can determine this number and will calculate the highest mortgage payment you can afford and keep your debt-to-income ratio affordable. Now notice, that nowhere in that last sentence did I say they ask you what you feel you can afford. They tell you what you can afford.
How does this relate to Linda with her very definite ideas of the home she thinks she can afford? Well, the credit repair agency will tell her the quickest way to raise her scores. However, a mortgage professional can tell Linda not only the optimal credit score she needs but also what she needs to pay off to get her to the necessary debt-to-income ratio gets her into her dream home. This whole process may take a longer time but I have seen people get demoralized when they put in all the hard work to raise their credit score, only to be disappointed that they still can’t afford the home they want.
Now that you know it’s NOT all about the credit score, please let me know if you need the name of a mortgage professional so you can get on the right track. Please email me and I will send you names and contact information. Make a plan to reach your dreams!