Avoid Surprises!


There's nothing more important to your ability to get (and the cost of) credit than your FICO score. For a full explanation, go to: www.MyFICO.com . Go to the lower part of the front page, where the "Free Credit Tools" are. You can download two separate booklets (one is 6 pages, the other is 20 pages) fully explaining what a FICO is and how it is determined. On the lower left side of the page is a chart that shows you a very interesting visual as to how much difference there can be in the cost of a loan, depending on what your score is. It's an eye-opener!

Whether you're shopping for real estate in Wenatchee, Washington or anywhere else in the United States, it is so important to know your credit score before you start shopping for a home. If you will be honest with your realtor before shopping, she (he) will know how to negotiate on your behalf. If your score is very low, it may be best to find a lease/purchase. This is where you lease a home for a period of time (generally a year or two) and part of the lease payment goes toward your down payment at closing. This does two things: 1) Gives you time to improve your credit scores so you can get "attractive" financing, and 2) Helps you build money for a down payment. Not all sellers are able or willing to do a lease/purchase but, for many, its a good option. As I said, knowing your credit scores will help you and your real estate agent develop a strategy that will work best for you in the short term and the long term.

Before I put a buyer into a lease/purchase, I have them go to a lender and get pre-qualified... even knowing they won't qualify.  Once they get rejected for financing, the lender can tell them what they need to do (and how long it will take) to get in a position to get approved to finance.  With this information, we can go to a seller with a concrete plan on how to make the purchase work.  What I do with a lease/purchase is write up an actual purchase and sale agreement, with all the terms outlined.... but the closing date is "extended" to a date further in the future than a typical sale.  I almost always make my lease purchases for a minimum of 12 months but, preferably 18 - 24 months.   It just depends on how many credit issues there are to work through. 

Besides resolving the credit issues so a buyer can get "reasonable" financing, the lease/purchase options has another advantage.  Because you are setting terms of the sale, but not closing until sometime in the future, the buyer will get the advantage of any increase in value over the lease period.  By this I mean, if a home is worth $150,000 today and the values are increasing at a rate of 5% per year, the home will (theoretically) worth $165,000 in two years.  This is an advantage in getting financing because your loan to value ratio is already 90% instead of 10% without putting a single dollar into the transaction.  With the money you've accumulated over the lease period, this makes the financing package even easier to put together.  Now, there are other factors to consider, like financing costs but you get the jist of what I'm trying to tell you here. 

One word of caution about lease/purchases... many real estage agents do not understand how they work and are not willing to do them because they don't get paid until the actual closing, which is a year or two down the road. I have closed on two this year, both of which were negotiated well over a year ago.   I don't mind waiting for deferred payment, but many agents won't even consider it and will, quite frankly, scoff at you for even mentioning it to them. 

I hope you find this information useful.

Yours for success & prosperity,
Carol