#4 Credit, Income, Assets!

                                                                                                                                           



      

 What are the relevant connections between Credit, Income and Assets now that I want to buy a house?  Which is what?   How do they help me?  Is one more important than the others?   How do they impact my goals?  How can they work for me?

All those questions are significant; and, you will be further ahead if you pause and make sure you understand, not only each concept, but the power and impact of each.

Your mortgage lender should be your coach and interpreter concerning how to fully understand credit, income and assets relative to acquiring a home loan. Most of us have learned a lot about the practical functions of credit and income simply from our day-to-day adult living.  Many of us have some “assets” – in the commonly accepted definition of the term.  What needs to happen when you want to buy a home is that you need to learn -- and have clarified -- exactly what those terms mean in the preparatory stages of qualifying for a home loan.

In the context of a home loan application, the details of your Credit, Income and Assets become the “drivers” of the qualification process.   Let’s take a good look first at Credit.

Credit (if you have some) is basically your report card to your prospective Lender.   It illuminates how you handle your debts – the bills you incur, the things you purchase, how you pay for what you acquire -- and how you manage the payment agreements that you make (implied or contracted) when you buy anything.  Your Credit Report is ever changing, may reflect unexpected information or changes and may even contain errors! With conscientious monitoring, you can be in control of it.  When problems develop or are discovered, your mortgage lender can help you and guide you to remedies and solutions.

What if you don’t have “credit?”  You may believe that it’s best to not have credit cards, to pay as you go and not rack up debt.  Philosophically, that’s a reasonable conclusion.  (Things like your utilities, PGE, and such things that you faithfully pay, don’t appear on a credit report as “good behavior!”   They don’t show up unless they haven’t been paid.)   Without the ability to see a pragmatic, provable path of your debt obligation management, your lender will be quite hesitant to advance the cost of a home with no record of money management to base it on.

Your prospective lender can coach you, in such a situation, on how to begin to develop a credit profile.  The advice might be to first acquire a “secured” credit card (one where you advance funds, then gradually progress to an increased, unsecured line).  Once established with good balance management, you will be on the track to building your qualifications for that home loan. And you will have a trusted guide helping you make the next right moves.

What if you have a lot of credit, are not maxed out, but are struggling?  Your mortgage lender can help you with a plan that will help you to manage those debts better. With the goal of a home loan in mind, it is important to stabilize credit management.  Believe it or not – there’s a right way and a wrong way to approach the pay down of nearly topped-out credit lines, and accounts in collection.

Once Credit is under control, you and your mortgage lender can move on to the other two of the big three:  Assets and Income!

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