A Slam Dunk Real Estate Deal
When I was 24 years old, I had a significant downpayment and a 3 bed, 2 bath condo picked out in Provo, UT, at the slick price of $129,000. Seeing that price now, just 6 years ago, seems too good to be true. I found some friends willing to rent from me and I knew I would be able to give them a great deal on rent, we’d be able to move out of our cramped dorms and I would be able to cover my entire mortgage with their rent. The deal was going to be a slam dunk.
I headed off to my local credit union with proof of downpayment ready to dive into my first real estate deal. The lender said “Hey, this looks a great deal, and your downpayment is adequate but I’m showing here you have never opened a credit card, car loan or any other type of credit”.
“Yes”, I beamed, proud of my fiscal responsibility of avoiding any debt. “Well that’s a little bit of a problem,” the lender said. “You see you need to have a credit history to receive a mortgage. You’ll have to come back in 6-12 months of credit, preferably with three lines of credit.”
I Missed Out on a Once-In-a Lifetime Deal
Frustrated, I said, “Is it not good that I have avoided debt and saved up this downpayment?”. He reported that while it was great I was being so responsible, the lending world needs to see if we are a responsible enough to pay back small bills before a larger loan like a mortgage is given.
I started building credit immediately but the housing market took off that year and took me almost three years to return with the right downpayment and buy my first property, paying nearly twice as much as the 129k condo I had saved for at first. It was a lesson well learned as I paid rent years longer than needed and missed out on a huge profits as that same condo would be worth around 400k today.
3 Things you need to do now, to build excellent credit
Here are my suggestions on building and maintaining the highest credit score:
- Open and maintain 3 or more lines of credit.
- Use each line of credit monthly, but always pay off the entire balance monthly.
- When possible, apply for credit line increases as this lowers your monthly utilization and will gradually raise your score.
If you follow these three recommendations you should have a very nice credit score in 6-12 months and an elite (near 800) credit score in the coming years. Even if you don’t plan on buying a home soon, it’s great to have the credit built and at the ready for when a great deal comes along.
I am happy to speak with anyone who has questions about building credit and preparing to buy a home.
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Great Western Real Estate/Era Brokers consolidated.
I’ve also included a tip sheet from our partner at Sun American Mortgage