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Discussion Starter · #1 ·
My wife and I are both young. I am getting close to graduating college while my wife is about half way. Anyway we really would like to be able to buy a house in the next year. Do you guys have any advice on building credit, getting home loans with lower credit scores, and any other advice?
 

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My wife and I are both young. I am getting close to graduating college while my wife is about half way. Anyway we really would like to be able to buy a house in the next year.
What's the rush? Ever heard the saying "Only Fools rush in"? You and your wife would be better off waiting at least five years after you graduate. You want be sure things are stable at whatever place you end up working at. Also the extra time will allow you to save up more for the down payment.
Do you guys have any advice on building credit,
Pay your rent and bills on time.

Pay down any debt you have a quickly as possible (part of your credit score comes from debt load)

getting home loans with lower credit scores,
Wait until you have better credit, Also the larger your down payment, the better the loan terms you can get.

and any other advice?
1) Join a Credit Union. They tend to give the best loan terms.

2) Dave Ramsey- Read his books and use them as a guideline with the following exceptions:

Instead of the Snowball (make minimum payments on all but the debt with the lowest balance, payoff that one by paying as much as you can per much), you should instead payoff the debt with the highest interest rate first. Long term you end up paying less.

Instead of enough money saved away to pay bills for 3-6 months, shoot for 12 months.

Instead of $1000 for an emergency fund, minimum $5,000, though $10,000 would be better.
 

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Make sure you have a happy and steady job before you buy a house. Your going to hate yourself if you buy house and then take a job halfway across town.
 

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Discussion Starter · #4 ·
If I spent 5 more years renting in apartments I would have waisted over 70k just on rent alone. Right now our apartment is 1k a month...houston is an expensive place to rent. Renting is a waist of money. And I plan on driving accross town to work. I would never live in the city.

Oh and the only debt we have is a small amount of student loans, and my wife works full time for great bank...we're pretty secure.

Thanks
 

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My advice is to buy as soon as you can qualify for a favorable mortgage as long as you are sure you are going to stay together and that your job is reasonably secure. Home prices are down now and there is a better chance that they will increase over the next few years than there is that they will continue to decline. If you wait two or three years you may end up paying 10-25 percent more for the same home.

As far as credit score, the two most important determinants are payment history and how much of your available credit you have used. It goes without saying that if you are late paying bills your credit score will be damaged badly. Also the more unused credit you have, the higher your score will be. It is better to have one credit card with a $10,000 limit and a $500 balance (9500 availabe credit) than to have two cards with $1000 limits and each with $250 balances (1500 available credit). While I am simplifying a little, generally that part of your score is based on the sum of your credit limits (or high balances on non revolving accounts) less the sum of your balances owed.

You need to open some accounts and try to get as high of a limit as they are willing to grant you. Then you need to use that credit, but pay it off very quickly. Try to pay most balances each month but keep small balances on a couple of accounts. As you develop payment histories with lenders, try to get them to increase you limits. Be very careful here as lots of young people get into trouble when they first get credit because they lack self-discipline.

There are other factors that affect your score such as how long accounts have been open, how many recent credit agency inquiries you have had, the amount of the total of your credit limits, the ratio of bank credit to consumer credit, etc., but if you take care of payment history and amount of approved but unused credit, you will have a good enough score to qualify for a favorable mortgage as long as you buy an appropriately priced home for your income and have a reasonable down payment.

When you get ready to buy, look for a good mortgage broker (they aren't all good) and let him guide you through the process. If you are inexperienced, dealing directly with the lender will be difficult and you will probably end up getting a worse mortgage than through a good broker (remember they aren't all good).

And after you buy, PAY EXTRA PRINCIPAL EVERY MONTH.
 

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OK an add-on:

Take 8seconds advice on joining a credit union. They are great for getting your credit established as they are usually easier to get credit from than banks. Their auto loans, consumer loans (furniture, line of credit, etc) are competetive with banks and their credit cards are normally better than banks. When it comes time for the home purchase though, like I said, go to a good mortgage broker. Credit unions can normally be beat on home mortgages.

Also, get those student loans paid off and do not take out any more. That is one of the biggest weights around the necks of young couples starting out.
 

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I agree with up top. Know what your credit score is and what you can afford. If the only debt you have is student loans then apply for some cards and use them. . You can pay bills on them etc and then pay the card. Try to get at least a 650 beacon score. Go for a 20% down payment
 

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The biggest factor is paying your bills on time, every time with your credit. Another factor is job history/employment history. Additionally, your income to debt ratio makes a diffence. One thing that could be in your favor is getting a mortgage while you're in your grace period with student loans. I wouldn't rush into a home purchase straight out of school. I graduated the first time in '04 and bought a home roughly a year later. It's a lot of responsibility and has hidden costs. It's important to think about that because (not knowing your profession/degree/etc) you'll be making peanuts for awhile. Don't necessarily get a credit card and use them because not everyone is disciplined - and if you're not disciplined you'll be in a world of hurt. Dave Ramsey has a ton of helpful info and you can get his books used online or at half-priced books. Another good resource is Larry Burkett (half.com is a good source). Budget, budget, budget. AND Pay your bills on time. That's what will help you the most.
 

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you asked the question...that is a good start

Good credit is symptomatic of a financially healthy lifestyle, not the driver of your decisions.

It's like fishing - most folks think a full cooler is the driver of being a good fisherman...so we end up with 100 guides in Rockport chunking croakers. Catching fish is merely symptomatic of knowing the water, weather and patterns of fish...the real benchmark of being a good fisherman.

Most important in your life right now -

Get at least 3 (and better 6) months of living expenses sitting in a bank in cash. This hedges the majority of outcomes in your professional life that will result in declaring bankruptcy. In addition, it grants you the ability to hand in your resignation every day you walk into your job and that is helpful for several reasons.

Max out what you can put in your company's savings program(automatic every paycheck). You won't miss it and when 10 years disappears in the blink of an eye, you'll smile having done this.

House - Negative cash flow, illiquid investment, prone to large reductions in value. Don't get in a big hurry. Don't worry about rates going up. Patiently doing it right might mean a 20%+ better investment...a couple percent (maybe) risk in rates isn't worth getting in a hurry.

Most Americans have little or negative net worth. Most folks carry huge credit card debt at their choice while blaming those companies that offer the debt, lol.

"Retired" people are merely those that can live on the interest/dividends/appreciation of their investments. The trick is to earn, keep and invest enough money (within acceptable risk limits) so that you get to free yourselves from needing more income (a job).

Mostly, keep asking questions and question everything you are told about your financial life.
 

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I would agree with Farmer Jim and add, don't buy as much house as you can afford, buy what you need, When this market turns around, and it always does, you will build equity quickly from getting in at a low point. This real estate market is bad, but nowhere near as bad as it was in the 80's.
 
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