The rent goes up every time we move, especially when our new landlord discovers our four children crammed into the small two-bedroom apartment. My family is starting to feel like a traveling circus. Why do we move so much? Every time the landlord tries to raise the rent (about every six months when they find our four additional little occupants) my husband refuses to renew the lease so off we go again. I’m exhausted!
Annie, how can we repair our credit and qualify for our first home loan?
— Bob and Amanda, Sparks
Dear Bob and Amanda: I hear your frustration and your exhaustion, loud and clear. You are so right about wanting to own rather than rent, especially in this buyer’s market. With low home prices and low interest rates, your mortgage payment will likely be much more affordable than what you’re used to now. You will enjoy many tax-deductible write-offs, too.
Here are five simple first steps to cleaning up your credit and moving toward owning your first home.
1. Stop using your credit cards. This is the most common road to high debt and high debt-to-income ratio. Look at it this way: Do you really want to spend the next 10 years paying interest on a long forgotten dinner at your favorite restaurant? Unlike spending real cash, when you charge something, it doesn’t seem like spending real money. Well, guess what? It is real money and it sounds like you have the credit report to prove it.
2. Pay down your credit card. Now that you’re not adding more debt to your credit card every month, let’s focus on paying it down to 25 percent of the balance. Call your credit card company and say, “I want to pay more than the minimum payment so I can get to 25 percent of the balance. How long will that take?” They will tell you how much you need to pay each month to accomplish this goal. Next, set up an automatic transfer from your checking account to pay a larger amount to pay down your debts. This action will improve your credit score and your credit report.
3. Change your spending habits. As Charlie Sheen says, “Plan better!” Do you bring a list to the grocery store or just wing it and hope you get what you need? You bring a list of what you need so you won’t just buy what you “want,” right? Apply this habit to everything you spend money on. No more unplanned purchases.
4. Create a monthly budget for everyone in the family. Include clothing, entertainment and other expenses and be as detailed as possible. This will be an eye-opening experience and a great economic lesson for the kids. Now, match up the total with what you and your husband bring home (no credit cards allowed). Communicate to your family how you all need to live within the family’s available means. A budget will reinforce the lesson to buy only what you need and can afford.
5. Review your credit report every three to six months. Keep the printouts of all your credit reports and review them for improvement. Getting rid of and paying down debts will quickly improve your credit score. Take your credit report to your bank and review it with the loan officer to make sure you are on the right track.
Be realistic about your first home. Look for something affordable, comfortable and with a mortgage payment around 30 percent of your net take-home income.
You can do this. You’ve already taken the first step by asking for help. It will happen more quickly than you think. Picture it: no more traveling circus. Home sweet home.
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.