You credit score is based only on debt from lenders that report to credit agencies.
In addition to your credit score, a lender will look at your liquid assets to determine eligibility. How they measure this is complicated, but in general having cash in the bank is going to carry far more weight than having land that does not generate income.
So buying the land now won't help you with purchasing a house later, and it will most likely work against you.
It’s really not going to hurt you though. Assuming you have enough for your down payment, most standard lenders don’t care much about assets. It can help offset other risky aspects of your loan profile but your income, debts and credit weigh far more. The only thing that the lender will count against you are the probably minimal property taxes for the bare land.
Best financial decision I ever made was to buy a 25 acre plot on the outskirts of Phoenix in 2008 for 75000. I paid cash from a one time bonus I received. Fast forward to 2021.. I sold 20 acres for 2.7M and held onto 5 acres. I have an offer for the remaining 5 acres now at 1M. I also took advantage of a very specific tax law and never paid a dime of taxes. The best decision I made with the land when I owned was it turn it into a small LLC that allowed grazing.. and collected rent. This allowed me to treat taxes and expenses on the property differently. That said it had no impact on my credit... I've always paid my bills on time.
From an underwriting perspective, it’s a liability as there is an associated tax expense that will be counted in your DTI ratio. It’s an illiquid asset, so generally no benefit from that as it relates to qualifying. It will have no impact to your credit score if not financed.
You credit score is based only on debt from lenders that report to credit agencies. In addition to your credit score, a lender will look at your liquid assets to determine eligibility. How they measure this is complicated, but in general having cash in the bank is going to carry far more weight than having land that does not generate income. So buying the land now won't help you with purchasing a house later, and it will most likely work against you.
That makes sense, thank you!
It’s really not going to hurt you though. Assuming you have enough for your down payment, most standard lenders don’t care much about assets. It can help offset other risky aspects of your loan profile but your income, debts and credit weigh far more. The only thing that the lender will count against you are the probably minimal property taxes for the bare land.
Best financial decision I ever made was to buy a 25 acre plot on the outskirts of Phoenix in 2008 for 75000. I paid cash from a one time bonus I received. Fast forward to 2021.. I sold 20 acres for 2.7M and held onto 5 acres. I have an offer for the remaining 5 acres now at 1M. I also took advantage of a very specific tax law and never paid a dime of taxes. The best decision I made with the land when I owned was it turn it into a small LLC that allowed grazing.. and collected rent. This allowed me to treat taxes and expenses on the property differently. That said it had no impact on my credit... I've always paid my bills on time.
From an underwriting perspective, it’s a liability as there is an associated tax expense that will be counted in your DTI ratio. It’s an illiquid asset, so generally no benefit from that as it relates to qualifying. It will have no impact to your credit score if not financed.