How I Bought My House with No Money and Poor Credit
My husband and I have dreamed of owning our own home for years. However, we both made some bad decisions and went through some hard times financially a few years ago and ruined our credit. In addition, we’re horrible at saving money! In short, we are terrible at handling money. However, we both make pretty good money and have long histories at our jobs. When we received a flyer in the mail from a mortgage broker advertising a first-time home buyers program that seemed too good to be true, I couldn’t help but call despite my reservations.
When I spoke to Lena (name changed to protect her identity), she told me that we had a little bit of work to do to get our credit score to where it needed to be. Both of us needed a FICO score of 600; Greg was very close but I was at 560. At that point, I gave up; telling her that there was no way I could pay off my old debts to bring the score up. This is what I’d been told to do in the past and I just didn’t have the money to do it. However, Lena wouldn’t let me give up so easily! She had some tricks for us to get our score up, and she said that there are ways to get around the lack of savings, such as asking for a seller’s credit. She told us how much she’d be able to get us approved for once we reached a 600 FICO (with reasonable payments), introduced us to an agent, and told us to go shopping.
Credit Repair in No Time
Lena explained that paying off the debts, while nice, isn’t necessarily the only path to bringing up my credit score. The credit reporting agencies actually put more emphasis on recent history: keeping the balances of your revolving accounts low, paying your bills on time, and having some account history. The last two items simply take time-all you can do is pay your bills on time every month and wait for your account to age. However, the first one is much more doable! I had three credit cards, all of which had balances that were very close to the credit limit. The credit reporting agencies prefer that you have a balance below 30% of your limit, although you also get some kudos for getting them below 50%.
Once Lena put this bug in our ear, I found creditboards.com, which is an amazing resource for credit repair. The site offers a discussion forum with more information than you could ever want for any situation, plus a lot of experts who have “been there and done that,” who will answer your questions and give advice. I highly recommend it!
One of the things I learned on creditboards is to go through your credit report and dispute any items that are questionable or reported incorrectly. You can start this by writing to the credit reporting agencies and asking them to remove the item or make the necessary correction. If they claim that the information is correct, your next step would be to write to the creditor to ask them to report the correct information. Greg and I both had some success with this, managing to remove a couple of old accounts and update others. Creditboards also suggests writing to your creditors to ask for a “goodwill adjustment” and remove late payment notations from your credit report. I tried this several times with no success, but I’ve read success stories from other people so it’s worth a shot!
Greg also had some high balances that he needed to take care of, so he took a distribution from his employee stock investment program. We got all of our balances below the 30% mark, and some of the cards were paid off. However, even with the extra money we had to really scrape things together to get the balances paid and we ended up having to use one of the cards again a couple of weeks later and that put us back a little.
Getting our balances down was the single largest contributor to our increased credit score, and we did manage to get both of our scores past the 600 mark. Every month that we kept them that way, we gained an extra couple of points and will continue to do so as long as we keep them down and pay our bills on time. Getting a late payment, opening a new account, or maxing out a card will set us way back.
Lena’s bad advice
I’m sorry to say that while Lena helped us a lot and put us on the path to home ownership, she also gave us some incorrect information. In addition, once we got to the 600 FICO score, she was not able to get us a loan. She had tried one program, an automated submission, and it came back rejected with “credit” as the reason. Unable to get any further explanation, Lena tried finding more ways for us raise our score, not all of which were valid. She also told us that we would probably get about $25k less than what she originally told us we’d be approved for. We were heartbroken.
One account that Lena wanted me to work on was a credit card that had poor payment history. Since it was a derogatory trade line, she thought I should pay it off even though it was below the 30% threshold. I asked about this on creditboards and was assured by a number of people that this wouldn’t make a substantial difference. I couldn’t really afford to pay it off, so I left it.
The next thing she told us to do was to pay an installment loan we have down to 50%. Again, we did not have the resources to do this as it would have been a couple of thousand dollars. Again I turned to creditboards and learned that most people see little or no increase in score when paying installment loan balances down or off. We were now on strike three-she had given us two things to do that would take money out of our pockets with no short-term increase in score, and she did not get us a loan when we got our scores to where she told us to get them. We began shopping for a new mortgage broker.
Mortgage Brokers Galore
When we told our realtor how unhappy we were with Lena, he told us that he would introduce us to another broker that he had worked with, Alicia. Simultaneously, Greg talked to a co-worker who does mortgages on the side to see if he could help. Brad did everything he could for us, and was able to get us an approval. Unfortunately, the conditions for the approval were such that we couldn’t accept-the interest rate was high, we would have to pay off all of our debts, and we would need several months’ worth of cash reserves in the bank. This was impossible, so we turned to Alicia.
Alicia Conte was like a bulldog. She aggressively went after a number of programs until she got us an approval. She got us approved for the original amount that Lena had told us we’d get, although with the interest rate the payments would be uncomfortably high-Lena had been very optimistic with the interest rate that she calculated for us (strike four). She helped us understand the tax advantages, so we realized that we could handle a higher payment than we originally thought. She continued shopping right up until our final offer was accepted on our house, getting us the best possible rate. She also pushed our funding through as quickly as possible, getting us the keys to our house about a week earlier than expected which worked out really well for us.
In order to work around our lack of savings, we asked for a 4% seller’s credit in addition to a lower price on the house. In addition, our realtor gave us a credit that was an incentive to stay with him when he changed firms. With these credits, we were able to pay for the loan fees and some of the other up-front costs of buying the house. We would never have been able to do it without them! This was the key to bringing it all together, and I have to give Lena credit for giving us the idea.
The entire process from the first phone call to Lena to getting our keys took about three months. It took about a month to get our credit scores up, a couple of weeks to get the right loan, a couple of weeks to get an offer accepted, then our escrow lasted for about three weeks. Today, we are very happy in our new home, although the payment is definitely a stretch! We hope to get good raises this year to help ease the pain, but knowing that our payment won’t go up for at least five years (we have a 5-year fixed interest rate, and even then our payment will only go up if rates skyrocket), and we’ll be eligible to refinance in about two years and hopefully lower our payment then. In the mean time, we’ll eat a lot of ramen and watch a lot of TV instead of going out!
If you are in the situation we were in earlier this year but dream of owning a home, I highly recommend paying down your credit card balances, pay all your bills on time, and don’t open any new accounts. When you’ve done this for about six months, talk to a couple of mortgage brokers and see if there is something they can do for you. Good Luck!
