#1 Purchase |

I’ve written about reasonable compensation (as recently as two days ago, I might add). Which is a complicated way of saying that when you are the owner of a company, you must receive a salary that reflects your efforts and your worth.

Sure, I know you want to take your compensation as a dividend (which is not subject to employment taxes- the 15.3% FICA and Medicare bill), but that doesn’t work. Because the IRS will then just render all those dividend withdrawals as compensation subject to employment taxes.

Which becomes even more important, if you are in the market for a new (or first home) or refinancing your home mortgage. Because your compensation will determine if/how/how much you can afford for your home. And, that doesn’t include the down payment money you are going to need or the closing costs.

So, this means you need to plan to buy your home. The time between your idea that you want to buy or refinance your home and when you do so can be as long as a year. And, assuming all things are copacetic, it might be as short as six months.

Just so you know, a 20% downpayment is one way to get a great loan rate. But, some loans can be had for 3.5% down (FHA- Federal Housing Administration) and, if you are a veteran, you may even qualify for zero down loans. (Note: These two choices may subject you to purchasing mortgage insurance- which is like having a second loan payment.) So, you should start stockpiling cash for that downpayment. (You also should accumulate a housing emergency fund- different from your rainy day fund, since that “impresses” the loan agency; they want to know you will be maintaining the house properly- which is at least as much their investment as it is yours. After all, you only own 20%- they own 80%.)

The first thing you need to check is your credit report. Theoretically, every taxpayer is afforded three free credit reports annually. Why three? Because there are three credit reporting agencies (Equifax, Trans Union, and Experian)- and you can obtain all of those credit reports here.

You need to verify that all the accounts listed – as well as loans- are really ones you’ve taken on. (For example, you might find that Wells Fargo added a credit card, checking account, or some other vehicle to your portfolio. You know- that’s why the CEO just “resigned” and they are getting a humongous fine.)

Check your report very carefully. Because, if there are errors, you just added about 6 months to your time frame. Because that is how long it generally takes to clear up an error on your credit report.

I am also assuming that you pay your all your bills on time. And, that you pay your credit card balances in full each month. If you don’t, you have a new job- one that needs about four to seven months of history. (Yes, I just expanded the time between your desire for a loan and obtaining one.) You need to make all your bills are now paid on time (maybe even 1 day early) and that none of your credit cards has a balance that is 50% or more of the total credit line. (Some loan officers recommend that maximum to be 30%.)

Sure, you use the CapitalOne account to accumulate miles, but for your loan to sail through- at the lowest rates possible- none of your credit balances should exceed that threshold. Because that keeps your credit score high. (You need a score of at least 625 to get a loan, 700 gets better rates, but the best choices accrue to those whose scores top 750.)

Oh- and don’t close any credit cards until after you get your loan. Because some loan agencies consider that to be a negative credit indicator.

One final piece of advice. Shop for the best loan rates. That means one or two months before you are ready to buy, you should find out what rates obtain from the various banks. (Come on- you wouldn’t buy your car without shopping around. And, that is only the SECOND or THIRD biggest purchase consumers ever make- your home and your college tuition are the winners of this contest.) Make sure you get a pre-approval letter, too- with all the rates and conditions.

Now, if you don’t own your own business, this still applies to you. All but the first two paragraphs.