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Obtaining financing to purchase a home seems to get more and more complex as the years pass by.  Many of my readers are likely long term homeowners who pay their bills on time and are not concerned about getting their next loan, whether its time to move up, down or just across town.  But what about the next generation of home buyers? The next generation of home buyers may very well be your kids or grandkids.  Our housing market starts at the bottom and builds from there.  People buy their first home, which allows someone else to make a move, and eventually all of these moves will affect you and your property value.  So equipping the next round of first time home buyers with the tools it takes to actually buy a home benefits us all.

When I was a kid I overheard my parents talking about saving the 20% down and being sure to pay all the bills on time.  But we recently moved through a period in our nation’s lending history when money was free flowing and loans could be had with a wink and a handshake. But those days are gone, likely forever.

After many “easy money” years, our newest group of home buyers may not have been educated with the old mantras – save – pay on time – and they may shocked to find out that they don’t have what it takes to get a loan.  So what does it take?  A loan applicant must have credit in their name (and not a card they are authorized to use that belongs to mom or dad) on three separate lines (cards, car loans) and they must NEVER have made a late payment.  The cards DO NOT have to be actually used to establish a credit history – the potential homebuyer just has to have been granted the cards.  If they do use the cards, then as a general rule, it is not a good idea to charge more than 50% of the credit granted in any given payment cycle, at least if they are nearing a time when a loan application is planned.  If they miss a payment, that line of credit is disqualified and they will  need to show the existence of 3 lines of credit that have never had a miss.  If they don’t have three lines of credit showing on their credit report, they will only be eligible for an FHA loan, and must be able to show 12 months of payment history on other things such as a cell phone bill or utility bill in their own name (note: utilities paid on a budget plan do not satisfy this requirement).

So what should you be doing to help the next generation of home buyers?  Educate your kids & grandkids about how they will have to learn to use credit cards responsibly and how they will always have to pay their bills on time.  When you feel they can handle a credit card (or 3), help them choose appropriate no fee cards.  Consider checking in with them each month at first to make sure that they are remembering to pay the bills (preferably in full) by the deadline each month.  With a little coaching, we can all help the next generation of homebuyers to be ready to successfully purchase their new home.