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  Dear
Debt Adviser,
Can you really buy a house with bad credit?
-- Loretta
 Dear
Loretta,
To hear some people talk, you'd think if
you don't have a FICO score that qualifies you for "credit
sainthood" there is something wrong with you!
In reality, credit histories
reflect a person's history in financial terms. If your life
history, job, spouse, kids or cat are less than perfect, then
probably so is your credit history.
So, let me restate your question
to, "Do I have good enough credit to afford a house?"
In most cases the answer
is probably yes. The variables, however, will involve time
or money.
The good news is that no matter how low your
credit score is, given time, things can be done to improve
it before you apply for a mortgage loan. They include:
- Check
your credit report and dispute
any inaccurate information you find with the bureau
that is reporting it. Look particularly for late pays that
are not correct, old information (older than seven years)
that should have dropped off or information that does not
belong to you at all.
- Pay off any charged-off accounts you have
on your credit report. A paid charge-off is not great, but
it will improve your score and a lender will view it much
less harshly.
- Bring accounts current that are reported
as paid late and make sure to continue to pay them on time.
Sixty days of on-time payments will go a long way toward
improving how a lender views you as a credit risk.
- Pay down your balances on your credit cards.
I realize that you may have negative items on your credit
report because you fell behind on credit card payments.
But if you now have enough money to be thinking about buying
a house, use some of it to pay down your credit balances.
The difference in the interest rate after improving your
credit will be well worth the wait.
If you do not have the resources or desire to
take the time to improve your credit, you will have more trouble
qualifying for a mortgage loan, and those for which you do
qualify will charge you a much higher interest rate or higher
fees than the average.
As an example, the difference between a $100,000
30-year fixed-rate mortgage loan at the current average rate
of 5.84 percent and one at 10 percent is more than $100,000
in extra interest payments!
To add salt to an already deep wound, you may
also have to come up with a larger down payment and pay more
in fees and points to qualify for this more-expensive loan
because of your credit history.
With that said, mortgage products are available
to accommodate just about anyone with a pulse and the desire
to become a homeowner. That does not mean, however, that it
is in the best interest of the consumer to sign on the dotted
line. Predatory lending tactics are something about which
everyone should be aware. Do not sign a loan agreement unless
you understand all the terms and fees. If your questions are
not answered satisfactorily, do not sign.
One place where I do recommend spending money
is on good legal counsel. Buying a house is expensive and
can be complex. Don't even consider going to a closing without
an attorney representing you!
Good luck!
The Debt Adviser, Steve Bucci, is the president
of Consumer Credit Counseling Service of Southern New England.
Visit CCCS
for additional debt
advice or click
here to ask a debt question.
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