Start from Nothing

The process of acquiring a property when beginning from nothing may seem like a daunting task.  I have heard plenty of excuses when I ask those around me why they have not already purchased a home or property, but I will try to provide some answers for the most frequently heard response, ” Well it’s so complicated.”

– Build Your Credit

Before anyone begins to invest or attempts to purchase a home it is essential that some sort of credit is built.  Credit is the score that mortgage companies, banks, private lenders, and many other financial institutions will use to get a better understanding of your background.  I believe scores can range from the 300s to the 800s. The scores reflect all of your past debts and the manner in which you paid them off.  If you use a credit and are late on your payments, then your credit score decreases.  The way to build your credit score is to purchase items with credit and then pay them off.  Bills, car payments, loans can all increase your credit if paid on time.  To check your credit, without hurting your credit score, register with http://www.creditkarma.com.

I began to build my credit by paying my school loans on time every month.  I then opened three credit cards that I began to treat as debit card.  I would purchase everything from food to a computer on my credit card then immediately pay it off with a single payment.  The key is to not allow the interest to increase your debt to save as much as possible (As a side note the greater the amount of credit you are given the better your credit score becomes). I did this consistently for about three months before I ever went to get a pre-approval loan letter.

– Pre-Approval Loan Letter

A pre-approval letter is literally a piece a paper from a bank or mortgage company stating how much money they are willing to lend you after having reviewed your finances.  This letter is needed before any real estate agent/broker will even consider working to find you a home.  The lenders will request pay-stubs, W2s, driver license, and possibly many other documents after having reviewed that.  They will also make a hard credit check on your credit to check all of your financial history.

I recommend that you research three different institutions to get a pre-approval letter from.  The institutions that provide mortgage loans include banks and mortgage companies, the only difference being the mortgage companies focus solely on loans for homes.  A mistake that I made when I first began to look for a lender was that I went to a single bank to get an approval letter.  I chose to go to my local Wells Fargo to get pre-approved.  There I met an arrogant “lender” who quickly looked at my documents and ran a hard credit check.  It was not a pleasant experience.  I came into the bank expecting to get a pre-approval for at least $150,000 or possibly $200,000.  I left without a pre-approval letter and feeling very blue.  I was to return in six months to get a $100,000 pre-approval letter.  I did not believe that was enough for a decent duplex.  When I asked what I could do to increase my loan amount the lender said I needed to pay off or reduce my school loans and increase my credit history.  This would not be a simple or quick process as I had $25,000 worth of school loans.  My only source of income was as a lab technician, underemployed, and barely making the middle class.

Six months later I went back to Wells Fargo to get my pre-approval letter.  I then got the bright idea of attempting to get a pre-approval from other institutions.  I tried both Quicken Loans and a local mortgage company, Platinum.  Quicken loans gave me a pre-approval for $150,000 and Platinum gave me $160,000 with the possibility of increasing the amount to $180,000 or more if I was to get a triplex/fourplex.  I learned that these other lenders also only needed 3 months of work history to give me a pre-approval letter.  I was angry because all the time I spent trying to reach my 6 months only let the prices of homes increase.

What to do:  Pick three financial institutions.  A major bank, a local bank, and a mortgage company.  Choose the company that you feel most comfortable with, or that gives you the most money.  With this pre-approval you can now choose a real estate broker.