I am realizing a few things about my life: I have bad credit because of my irresponsible past, I no longer work for an employer and I depend upon my wife’s and my work habits for how we live, and I have very few professional relationships for help and advice.

I came to terms with it.

Now I’m doing something about it.

I met with a banker today that allowed me to ask every question under the sun that had to do with my wife’s and my future. So I did, and the nice man from Wells Fargo Business Banking Department Answered my questions.

[C] = Chais Meyer, [W] = Wells Fargo Man - [Below is a paraphrased version of our conversation]

[C] What are some steps I can do to help fix my credit score (besides paying bills on time)? I want it to be easier to get a mortgage for future real estate investment properties?

[W] A Main tip for your credit score to be top notch is called the 50% rule, do not have more than 50% of your total
available credit card liability used. Stay under that amount and that will do two things, You will be using credit in a positive way (building credit), and You will not be abusing it (maxing your cards out) and the credit card companies will see those as a huge positives. Another thing to consider is your limit on credit cards. If you have $20,000 available credit on 4 different cards, to creditors that is saying that any given moment you could (only if you wanted to) spend $80,000 dollars on whatever you want (bad news).

[C] While I am working on my credit, to get it up where it needs to be, what can I be doing in the meantime to build a relationship with the local banks (getting ready to borrow money for investments)?

[W] One thing that will really help is a CD Guaranteed note , purchase a CD (for a value of $250-$1000, a small amount) and use it as collateral on a personal loan from your bank. [side note: if you were to save up $1000 and purchase 2 CDs @ $500 a piece, from 2 different banks, and then use those CDs to get a $500 note (loan) from each bank, you would then be able to use the loan money from the banks to pay off your loans monthly. This Process is guaranteed to build your credit (as long as you pay on time) and build professional business relationships.] A very easy way to help yourself out for the future.

[C] So, after I have built some professional relationships and have been working on my credit, what are some rules that I need to know before I come to a bank for a mortgage?

[W] The main question we ask ourselves is, is there enough cash flow to be able to afford this extra payment? Debt Service Coverage ratio : What is the ratio of income compared to your total monthly debts (not including household utilities, etc.) ? We look at the loan payment for the Mortgage, Property taxes, etc. Your bare minimum debt service coverage ratio should be 1.25. [click on the link above for a more detailed description.]

[C] O.k., the last thing, What kind of down payment will I need to have to purchase an investment property?

[W] It all depends on who is purchasing it (Personally or through a business entity ), and if the owner will be living in it or not.

1) If a business entity is purchasing a property and it is owner occupied, you can expect to pay at least 20% down.

2) If a business entity is purchasing a property and it is not owner occupied, you can expect to pay at least 25-30% down.

3) If a person is purchasing a property and it is owner occupied, you can expect to pay at least 10-20% down.

4) If a person is purchasing a property and it is not owner occupied, you can expect to pay at least 40% down.

This was a great meeting and very informative, Thanks to the Wells Fargo Man for giving us a little insight in the banking world. I hope this time spent will help others that have an interest in real estate investments and getting your life in order.

~Chais Meyer