are to be divided. Need an attorney? Head to Chapter 3 for help in finding one.
Using Conventional Financing (for Longer-Term Real Estate Deals)
Technically, flipping is quick — you buy, rehab, and sell a house in a matter of weeks or months. But not everyone’s in such a big hurry, especially when they’re just starting out. You may want to take your time with your first flip to develop a feel for how it’s done. Maybe you want to live in the house for two years so that you can avoid paying income tax on a good chunk of your profit. Whatever the reason, if you plan to take your time flipping a house, you may have other financing options — traditional financing, such as taking out a mortgage to buy the property.
If you’re thinking of going with traditional financing, take a closer look at your creditworthiness and examine your financial position as carefully as any lender would examine it. Pretend that you’re the lender — in that position, would you loan yourself the money?
The following sections take a snapshot of your financial picture and highlight the details that lenders commonly consider before approving a loan. By identifying areas of improvement, you can airbrush out any imperfections to make yourself look as good as possible to prospective lenders.
Determining what you’re worth in dollars and cents: Net worth
Net Worth equals Assets minus Liabilities
A strong positive net worth indicates that you
Own more than you owe
Don’t borrow more than you can pay for
Can pay off a loan by liquidating assets, if necessary
Probably know more about net worth than you realize
To prove to a lender that you’re net worthy, type up a page that lists your assets and liabilities and presents your net worth. If you have a spreadsheet program or a personal finance program, such as Quicken, use the Reports feature to generate a net worth report.
Checking and correcting your credit report
Good credit is gold. Without it, you have access only to your own money. With it, you can put other people’s money to work for you. Whenever you apply for a loan, the lending institution performs a credit check — sort of a background check to make sure that you’re not up to your gills in debt, that your income covers expenses, and that you pay your bills on time.
The following sections show you how to obtain, review, and correct your credit report. I also explain how to improve your credit score.
Obtaining a credit report
The Federal Trade Commission (FTC) has made it mandatory for the three major credit reporting companies to provide you with a free credit report once every 12 months. To obtain your free credit report, submit your request online at www.annualcreditreport.com.
If you already obtained a free credit report this year and want something more recent, you can order a credit report from any or all of the following three credit reporting agencies (prices and terms vary):
Equifax: www.equifax.com
Experian: www.experian.com
TransUnion: www.transunion.com
Inspecting your credit report
When you receive your credit report, inspect it carefully for the following red flags:
Addresses of places you’ve never lived
Aliases you’ve never used, which may indicate that someone else is using your social security number or that the credit reporting agency has mixed someone else’s data into yours
Two or more social security numbers, flagging the possibility that information for someone with the same name has made it into your credit report
Wrong date of birth (DOB)
Credit cards you don’t have
Loans you haven’t taken out
Records of unpaid bills that you either know you paid or have good reason for not paying
Records of delinquent payments that you either know you paid on time or have a good excuse for not paying on time
Inquiries from companies with whom you’ve never done business (when you apply for a loan, the lender typically runs an inquiry on your credit report, and that shows up on the report)
Check your credit report once a year to keep track of your creditworthiness over time and to stay on top of any false information or signs of financial fraud.
Understanding what your credit score means
To give your credit rating an air of objectivity, credit reporting agencies often assign you a credit score that ranges roughly between 300 (you have never paid a bill in your life) and 900 (you borrow often, always pay your bills on time, and carry no huge balances on your credit cards).
