By Lorri Gifford
I hope that the series on Estate Planning proved helpful and supportive for you. This month I am beginning yet another journey in the world of money. During the upcoming months this new series will explore the topics of: choosing a realtor, becoming a first time home buyer, refinancing your home, selling a home, and becoming an investor/landlord. In addition I will tackle various other topics that may fit into this category along the way plus any others that you, dear readers, may write in to us and suggest. Send all suggestions to email@example.com. We look forward to any and all input. Help us help you become more enlightened in the world of abundance.
What kind of environment do you live in? Your living environment is an outward reflection of the inner workings of your mind. A clean and tidy home reflects a more ordered mind and a messy and cluttered home reflects a similar mind. Is your home a place of chaos or a place to unwind after a long day/night at work?
Remember, all that abundance needs to enter your life is the space and permission to do it. It can be as simple as cleaning out your closet, sorting through old piles of paperwork, hanging some pictures, sweeping, dusting, or clearing off the coffee table and putting out fresh flowers. When you begin by improving where you currently reside, you will be more present to the opportunities that present themselves for change. As usual, I learned this lesson through experience.
When I moved into my apartment in West Asheville, I referred to it as my transitional place the entire first year I lived there. I refused to put pictures on the walls and would continually tell friends and clients that it was only temporary until I found a place that I really loved. Coincidentally, that year, my life was in transition. My career didn’t have a firm foundation, and my health kept fluctuating. When I came home I would look at the blank walls and become depressed. My life seemed empty as well. One day I thought, “What would happen if I stop calling this space my transitional space and really make it my home?” So, I put pictures and paintings up on the walls and settled in. That year I settled into my career and felt more grounded and content. My living space and inner world were finally filled with color.
What changes are you willing to make in your current living environment to pave the way for more clarity, opportunity and abundance? Maybe this added clarity will inspire you to own your own space. Imagine owning a home; having the freedom to express your creativity without first checking with a landlord. Is owning a home a current dream of yours?
If you have begun looking at the real estate pages in the Sunday paper or talking to your friends who currently own homes, I am sure that you have heard the phrases, “It’s a good time to buy.” or “It’s a buyer’s market.” There is evidence to support those phrases. When the housing bubble began in 2005, real estate became a hot ticket item, real estate prices rose, and low introductory mortgage rates were offered. Then in 2007 a large number of homeowners became unable to pay their mortgages when their adjustable rate mortgages went from the introductory rate to regular, higher interest rates. This led to many homes going into foreclosure and being sold at lower prices to try to recoup some of the monetary loss. As a result, housing prices have reached new lows in 2012.
There are several theories about the housing bubble and what caused it. Feel free to research the topic yourself. For our immediate purposes all you need to know is that currently homes are affordable and interest rates are good.
So how does one begin to prepare for the process of buying a home?
Well, if buying a home is a dream of yours, you will need to come up with the capitol for the purchase. Perhaps you have piles of money already in the bank and are ready to pay in full with cash. Most of us however, will probably need a little help to purchase our dream home. For those of us who fall into this category, our new best friend becomes a lending institution.
Be aware that there are many mortgage lenders out there. Both banks and credit unions offer home loans. Your current lending institution is not necessarily the one that you will end up working with. This will be explored in further detail in a future article. For now, we will focus on the two most important things to be aware of before approaching a lending institution: your credit score and your debt to income ratio (DTI).
“Today, there are three kinds of people: the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s.” ~Earl Wilson
Your Credit Score:
It is essential to have a good credit score when considering the purchase of a home. This is the first thing a lending institution will want to know before loaning you money. Several places offer free annual credit reports. If you are unsure of your current score, you may want to get one and see if there are any old debts that you need to clear up.
Credit scores can range anywhere from 300-850. Most lenders will not want to work with you if your score is below 620. However, if you have a score of 760 or above, you will probably get some of the lowest interest rates available.
What contributes to your credit score?
Bill paying history: 35%
How much you owe: 30%
How long you’ve used credit: 15%
How often you’ve applied for credit: 10%
Types of credit you use: 10%
Because credit scores can change daily, you can start improving yours now. Here are 5 tips to get you started:
Correct any discrepancies on your credit report
Pay your bills on time
Keep your credit card balances low
Pay your card off rather than transferring it to a less expensive card.
Apply for new cards only as needed
Credit experts will advise you to keep your balance on your credit card below 30% of your limit. Paying your balances off each month is ideal, but creditors can take 60+ days to report that payment to the credit bureau. So try not to charge anything for at least a few months before applying for a loan.
Also, while you may be tempted to close out a credit card if you transfer your balance to a lower-rate card, don’t. This may hurt your score as your total available credit limit amount goes down when you close an account. (For more info about credit scores, see article by Sandy McCall in WNC Woman, www.wncwoman.com/january11/page34.html)
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” ~Ogden Nash
Lenders like it when a potential borrower is responsibly managing a mix of revolving debt (credit cards) and installment debt (car loan).
Lenders do not like when a potential borrower is a card hopper (one who has moved credit card balances from card to card to get the lowest interest rate) or has applied for a lot of loans and credit cards in a short period of time.
Good Debt vs. Bad Debt:
Is there really such a thing as Good Debt? Yes. Believe it or not, debt can actually be utilized in building wealth. The key is in differentiating between good and bad debt. Let me break it down into the simplest terms:
Bad debt: Something that decreases in value immediately after you purchase it. Something that has no potential to increase in value.
Good Debt: Investment debt that creates value, is tax-deductible or produces more wealth in the long run.
Debt to Income Ratio:
Another important number to know when thinking of purchasing a home is your DTI or debit to income ratio number. Your DTI is the amount of debt you have as compared to your overall income. Lenders will look at this ratio when deciding whether to lend you money for buying a house. A lower number is considered a better number. If you have a good balance between income and debt, your DTI will be low. And yes, lenders like to see a low number. In general the lower it is, the greater the chance you will be able to get the loan you seek.
To figure out your DTI, add up all of your monthly debt obligations —often called your recurring debt. This includes: car loans, student loans, your minimum monthly payments on any credit card debt, and any other loans that you might have. Once you have this figure, divide it by your gross monthly income.
If your debt-to-income ratio is:
36% or less: this is a healthy debt load to carry.
37%-42%: you’ll want to start taking care of your debt before you get in real trouble.
43%-49%: financial problems are upon you unless you take immediate action.
50% or more: get professional help to reduce your debt quickly.
Knowing these two numbers—credit score and DTI—and doing what you can to optimize them will put you in a powerful position with lenders. Remember, think big for your credit score and lower the bar on your DTI. What changes can you make today to make this happen?
“The only man who sticks closer to you in adversity than a friend is a creditor.” ~Unknown
Lorri Gifford has been reading Tarot Cards since 1986. While living in California, she worked at The Chopra Center for Well-being as their Spa Director and a Lead Educator. Lorri enjoys writing, giving readings, coaching and helping others develop and deepen their intuition. She currently resides in the Raleigh area and is available for phone or Skype readings and can be reached by cell at: 619-602-8981 or at www.readingswithlorri.com.