Paris and I are those that are on the fence when we speak about the following topics of having any kind of debt, in the Santa Clarita Valley. With Real Estate, good debt versus bad debt, and your wanting to purchase a home, we do say it is taboo to go out and purchase a vehicle or any other big ticket item during the home buying process. It kills your fico score. There is a time that you can get away with it but this would be on a case by case basis and we will advise you when you can have the green light.
The credit companies pull the credit at various times during the escrow process. This is a bit on the normal side now due to all of those loans that people are defaulting on and the large fallout of the sub prime lender back in early 2007. It is a knee-jerk reaction by the banks – But that reaction is what I would have expected. People were qualifying for loans without needing to have anything but a breath inside of their body. So it is something that needed to happen to control the flow of "stated" loans and no-document origination and borrowing
When it comes to debt, most consumers fall into either of two camps – those who fear debt and those who embrace it. Let’s call the first group the debt-o-phobes. To these folks, debt is to be avoided at all costs. They don’t carry a credit card and refuse to buy anything, except a home perhaps, on credit. We’ll call the other group debt-thusiasts. As long as they can have whatever they want right now and can afford the monthly payments, they don’t care how much debt they are in or interest they will pay.
Neither extreme is healthy. The debt-thusiasts are constantly paying too much for goods and services, because in addition to the purchase price, they are usually paying a hefty amount in finance charges. They never get ahead and have little chance of building wealth.
The debt-o-phobes, on the other hand, can save a considerable amount of money in interest, but they have less money available to fund revenue-generating investments. Because they refuse to take on debt, the only money they have to invest is the money they have squirreled away.
Financially healthy, wealthy, and wise individuals are not opposed to taking on debt, but they are very proactive in limiting bad debt and maximizing the power of good debt.
Bad Debt What exactly is bad debt? Bad debt is money you owe on something that 1) does not increase your earning potential and 2) depreciates – decreases in value over time. Generally speaking, if you go on a spending spree with your credit card, you are taking on bad debt.
Some experts would claim that a loan taken out to purchase a new car is bad debt, because as soon as you drive the car off the lot it depreciates. While that may be true, financing the purchase of a nice car could increase your earnings potential, allowing you to drive to a workplace that offers a higher salary. A nice car could also improve the earnings potential of someone in sales who must drive clients around.
Good Debt Good debt is money you owe on something that either 1) increases your earnings potential sufficiently to pay back the debt, and then some, or 2) enables you to invest in an appreciable asset – an asset whose value increases over time sufficiently to cover the debt.
Experts generally agree that a mortgage loan used to purchase a home represents good debt, because while you are paying the interest on the mortgage, your home is appreciating in excess of the percentage interest you pay. In addition, your home mortgage is tax-deductible, assuming you can and do itemize your deductions.
Most people also consider education loans to be a form of good debt, because an education generally improves your earnings potential – although that may depend on what you study in school and how much debt you graduate with.
Exchanging Bad Debt for Better Debt Although you may not be able to trade bad debt for good debt, you may be able to decrease your amount of bad debt. If you have a large amount of credit card debt, for example, and some equity in your home, you may benefit by refinancing your mortgage loan to pay off your credit card debt. (Equity is the amount of money locked up in your home – if you sold your home today and paid off the mortgage, the amount of money you would have left represents the equity.)
Refinancing your home mortgage to pay off your credit card debt could benefit you in two ways: • Decrease the amount of interest you’re paying. A mortgage loan usually carries a significantly lower interest rate than the rate charged on credit card debt.
• Makes the interest you are paying tax-deductible. Home mortgage interest is tax-deductible. The interest you pay on your credit card balance is not.
Caution: Consult with a trusted and qualified accountant or loan specialist before refinancing your home to pay down your credit card debt. Refinancing too often can cost you a considerable amount of money in loan origination fees and other expenses related to taking out the loan.
Caution: Refinancing to pay off credit card debt converts the unsecured credit card debt into secured debt. The debt is now secured by your home, which allows the lender to foreclose if you are unable to make payments. Credit card companies cannot seize your home if you fail to make payments. In addition, if you file for bankruptcy, secured debts have priority over unsecured debts, so if you think you might have to file for bankruptcy later, converting unsecured debt into secured debt may not be a good idea.
Investing with Other People’s Money One of the secrets to maximizing the return on your investments is to use borrowed money (other people’s money) to finance your investments. For example, say you have $100,000 to invest in real estate, knowing that you can buy and fix up a home for $100,000 and then turn around and sell it for $120,000. If you could pull it off, you would earn a 20% profit, which isn’t bad.
But what if you took that $100,000 purchased and fixed up five properties? For each property, you would use $20,000 of your own money as a down payment and $80,000 of borrowed money – other people’s money. Now, you buy, fix, and sell five homes, earning $20,000 per home for a total of $100,000 in profits – a 100% profit!
That’s what you call leverage, and you gain leverage by using other people’s money.
When you are ready to begin building your own wealth in real estate, talk to your loan officer or mortgage broker about leveraging the power of other people’s money. He or she will know exactly what you’re talking about.
Ralph R. Roberts, GRI, CRS is an experienced real estate agent and investor and author of Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons).
What is very interesting by Ralph’s article is the way he has his warning within the advice. The most important thing you can do for yourself during your hunt for a home or any other Real Estate venture is to contact a Licensed Professional that has your needs at their center. In this world of misguidance for own self-advancement – It is paramount that you use your focused eye to disertain between truth and being mislead. We watch all aspects of the Real Estate Transaction – We want you to come back to us 4.7 years later so we can help you sell and move up. That is out goal and focus. We want your kids to use us. We want you to be so happy with what we provide for you and to feel so safe that you cannot help to tell everyone about Paris MacIVOR and Connor MacIVOR.
Any City in the Santa Clarita Valley Followed by a 911.com to see what we offer in exclusivity with regards to REMAX of Santa Clarita or REMAX of Valencia – Being the subject matter experts, www.valencia911.com is an example – CONNOR with HONOR

That is entirely too much time on someone’s hands!!!