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 the 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 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.
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.