How to Clean Up Messy Credit

My wife and I have decided on the area we’d like to raise our kids in and found a house we love. In the process, we were disappointed to find out our credit is not high enough to purchase.  What can we do to improve it so we can purchase?

To get the keys to your dream home, it’s necessary to clean up messy credit. Your reputation as a debtor is the main deciding factor for a lender in determining not only your interest rate and reliability, but also if you can qualify for a mortgage.

It is important to look carefully at your credit report (which can be accessed free online) to see why your score is low, remembering the following:

  • If you have bills in collection, pay them off as soon as possible. If you don’t have the resources to pay the balance, you may be able to negotiate a lesser amount to satisfy the creditor.
  • If you see errors, get in touch with the consumer bureau and creditor immediately. Once proved, the mistake must be, by law, repaired within 30 days.
  • Pay down loans. Your debt is evaluated in comparison to the total credit available to you, called credit utilization. So $1,000 of total debt with $1,500 total credit limit is probably worse than $3,000 debt with a $10,000 limit. If your credit utilization rises above 50 percent, your credit score will suffer.
  • Pay all of your bills on time every month. Your payment history makes up roughly one third of your credit score, more than any other factor.   If paying the amount due each month is not possible, call your creditors to discuss a reasonable payment plan acceptable to all parties. Then stay with the plan.
  • Avoid applying for numerous new credit lines in a short period of time. Each time you apply for a new credit card, your credit score will take a hit.
  • If you don’t have a credit card, get and use one in order to establish good credit. Make sure to pay it off in full every month.

If you follow these suggestions, your score will improve with time. If nothing else changes, your credit score will gradually creep up on its own and before you know it, you will own the home you love.

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Renting vs Buying

I graduated from college a few years ago and have a job I love.  I’ve been renting a townhome and need to renew my lease.  In so doing, I was told my rent is going to go up $100/month.  This got me thinking about buying a place.  I’m wondering what you suggest I do. 

Your experience of your rent going up is typical of what renters are finding these days. While home prices continue to remain low, rents are rising.  So purchasing a home seems to make sense.

Consider the following advantages to homeownership:

1 – Money matters – You can pay the same monthly payment, or even less, while often building equity (the difference in how much the home is worth over how much you owe on it). In addition, your mortgage interest and property taxes can be deducted on your federal tax returns.  Also, in paying your mortgage each month you are routinely putting money away, forcing you to save.  This especially makes sense now when interest rates are low.

2 – Security and control – By living in your own home, no landlord can kick you out or raise your rent. You can remove walls, remodel and make repairs without anyone’s permission.  Of course, you own the home so this is at your expense.

3 – Stability – A home you own provides a permanent place where you can live and grow.  This promotes a sense of community which encourages involvement to better your neighborhood.

Although these are good reasons to buy a home, if you see your job as short term or you are not sure you want to stay in the area (at least 5 years), renting is your better option.

If you’re convinced home ownership is worth looking into, contact your local realtor who will guide you through the process. Most likely you will find yourself a home owner and happier for it.

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Bring Them In

Our real estate agent told us what she thought we needed to do to get our home ready to sell.   We’ve painted, replaced carpeting, emptied out and cleaned until we’re exhausted.   According to her, we also need to do a lot of work on the outside.  We’re anxious to get our home on the market.  How important is the outside?

In my experience, the exterior of your home is very important because it is the first thing the buyers see. You never have a second chance to make a first impression.  If potential buyers are turned off when they drive up to your home, they will not be impressed with the inside, no matter how perfect it is.  In fact, they may not even come in.  Usually, interested folks drive by a home before they decide to schedule a showing.  A well kept property will bring them in.

Specifically this means pressure washing your home, cleaning and staining the deck, weeding and mulching flower beds, trimming shrubbery and removing dead branches, sealing the driveway, cleaning or replacing exterior lighting, painting or cleaning exterior doors and garage doors, adding colorful doormats, placing outdoor furniture in seating areas, adding color with flower pots, and removing lawn ornaments and basketball hoops.  This list probably looks similar to what your agent recommended.

When selling your home, you essentially have to sell it three times: once online, once when buyers drive by and finally when they come inside.  Making the improvements on the outside will bring them in.

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Buyers Need to Love It

We are getting our home ready to sell. The last time we painted it was about 10 years ago. Our agent told us we should repaint and gave us some neutral paint choices. Wouldn’t it be better to offer money to the new buyers so they can choose their own colors instead of painting it a boring neutral, since they may not like neutral?

Your objection to painting makes sense. Why spend money doing something that your buyer may not like? Instead, offer them a credit to do it their way.

 It sounds good, but unfortunately, homes sales do not support it. Buying a home is an emotional decision. Buyers need to love your place. This love affair begins at the front door. A fresh coat of paint is one of the easiest, most dramatic and most inexpensive ways to enhance their first impression. Freshly painted doors, walls and trim give the message that your home is clean, bright and well cared for. If you do not have experience in painting, hire a painter as a sloppy paint job can be worse than no paint job.

 Why neutral, you ask? Buyers want to imagine your home as a blank canvas for their own vision. Neutral colors will help amplify the experience of light and space and will keep them focused on the essentials. As they leave, you don’t want them referring to your place as “the house with the blue den.” Instead, you’re hoping for “the house with the large kitchen” or “the home with the magnificent fireplace.”

 Buyers need to love your home as soon as they step into it. Without a doubt, a fresh coat of paint of a neutral color is one of the best ways to begin that love affair.

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Waiting and Wondering

Dear Esther – We have been looking at homes for some time with a real estate agent. We found one last week that was perfect so we submitted a written offer.  Our agent has been back and forth with the sellers for a few days and we still have not come to agreement on a price and whether the refrigerator, washer and dryer are included.   I’m surprised at the delay.  Is this typical? 

It’s not unusual for offers to be countered a few times before both buyers and sellers come to agreement.  Because it continues to be a buyer’s market, many initial offers are substantially lower than what the sellers were anticipating.  Buyers are looking for deals, and rightfully so, as there are some out there to be had.

 Even though most sellers are serious about selling, they would prefer not to “give” their home away.  At the same time, they don’t want to lose the buyers.  Uncertainties abound   – How much do the buyers want their home? If they don’t accept their offer, will the buyer simply move onto another home?  If so, how long before they get another offer?

As a buyer, you are wondering as well – How low will the sellers go?  How motivated are they? Was your initial offer insulting to them?  If you can’t agree on a price, will you find another home as perfect as this one?

Fortunately, real estate agents are trained and experienced in these negotiations.  It is what they do day in and out.  Use your agent’s expertise; lean on her; ask her questions to keep your concerns at the forefront of her mind.  You hired her to find the home you love at a price you can afford.  A good agent will work hard to do just that.

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Less Is More

Dear Esther – We recently met with a real estate agent about selling our home. She gave us a very long “to do” list which includes removing lots of what she called “clutter”, even mentioning that we should get rid of some of our furniture. Is this typical? What do you think?

A good real estate agent will do much more than take photos and put a sign in your yard. The agent who met with you to sell your home understands that your home will sell more quickly and for more money if it is appealing to prospective buyers.

This is not a personal assault on your taste. Much of what is near and dear to you, sad to say, is clutter to the rest of the world. Pack up knick knacks, photographs, refrigerator magnets, vacation mementos and anything personal. These items are distractions when buyers walk into your home. They get in the way of their appreciation of the space. Your tables, counters and mantels should have very little on them. Less is more.

If a room has too much furniture or furniture that is too big for the space, the room appears smaller than it should and may be confusing to buyers. A large sofa in a small den can crowd the room and make it look cramped. Every room should have a purpose. Buyers are confused if a tread mill is next to the desk. Is it an exercise room or office? Stage the room as one or the other.

Another important task is cleaning out and organizing closets, drawers and storage areas. Buyers are nosy and rightfully so as they want to make sure there is enough room for their stuff. Closets which are too full, piled floor to ceiling, tell buyers there is not enough storage. Throw out, give away or find a storage unit for things you are not using. Less is more.

Then clean, clean and clean some more. Your home should pass the white glove test beginning at the front door. Sidewalks and exterior siding should be pressure washed, light fixtures working and cleaned, windows and mirrors windexed, walls and doors wiped and carpet stains removed. If you’re not into cleaning, hire a cleaning service.  

I suggest you take your agent’s list seriously.   Folks need to feel that life will be better for them if they live in your home. A beautiful place will do that for them.

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Dear Esther – I really would like to buy a home since I have a good job and want to stay in the area.  I talked to a bank representative who told me that I do not have sufficient credit to get a mortgage.  A friend said I may want to look into a lease to purchase.  Can you explain what that is? 

A lease to purchase is an excellent option for someone in your situation.  You understand the benefits in putting your money towards purchasing over renting.  You plan to stay in the area.  Your job is secure and supportive. Your one problem is the ability to get financing now to purchase probably because you’ve experienced some credit issues in the past, you have not established a history of credit or your job is new.  A lease to purchase is a perfect fit for you if you find a property you want to purchase within your price range.

I suggest you find a real estate agent who has a track record of selling and buying properties in your purchase area.  She will contact agents of for sale and lease properties you are interested in to see if their owners will agree to a lease to purchase. When you’ve found one, she will help you sign a purchase contract. Your decisions are the same as for any purchase contract – what you will pay for the home, when you can settle (how long before you have the ability to purchase),  inspections  and your mortgage information. At the same time, you will also sign a lease agreement, deciding on the lease term (when to begin the lease and when it will end). You will also need to decide what your monthly lease amount will be and how much you can give up and above that, which will go towards the purchase of the home when you settle. 

This can be a win/win for sellers and buyers. The seller has income from a house he was formerly paying the bills on (utilities, taxes etc) and eventually a buyer and the buyer has a permanent place to live while working towards purchasing.


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