11/10/1999Emblazoned on the couple's credit report is that regrettable word: "bankruptcy." The pair resorted to a court-ordered discharge of their debts two years ago, after temporary financial problems threatened to sink their small family business. After many years of failed attempts to purchase a home, the couple assumed that their bankruptcy put the possibility of homeownership out of reach forever.
But America is a land of second chances. So it should come as no surprise that, with their family business thriving once again, the couple recently qualified to buy a home. Now that they have mortgage approval, they expect to close on a purchase in coming weeks.
"Some credit problems take a while to resolve, but they are resolvable," says Jewel Kreider, a Century 21 agent. Unsuccessful attempts to buy a home can cause people to give up, yet she insists that this attitude is unwarranted.
"There's a tremendous amount of mortgage money out there for all types of buyers," Kreider points out. There are now dozens of home-lending programs available that cater to those who are short on down-payment capital or who have blotchy credit histories, says Joan McLellan Tayler, the author of several books on real estate.
Here are five suggestions for those unwilling to give up their homeownership hopes, despite a history of failure:
No. 1: Don't let a "BK" mark you for life.
In mortgage industry parlance, "BK" means bankruptcy. And while you may be horrified to let others know you bear this mark on your credit report, you can be assured your lender won't be surprised by it, says Margarita Verduzco, who sells homes through the Re/Max Realty chain. It is likely you'll have to wait at least two years after discharging your debts before you can expect approval on a home loan. You'll also need a sterling record of paying bills promptly since your bankruptcy.
Why would a lender make a home loan to someone who has gone bankrupt? Because a mortgage is a debt secured by property. Lenders are more willing to make a secured loan than one backed solely by your signature. Should you default on your mortgage, the lender is likely to foreclose, take the property and suffer little or no financial harm.
No. 2: Don't "catastrophize" over small credit blemishes.
If once-bankrupt individuals can buy homes, why should you fret over smaller credit indiscretions from your past? "Maybe you forgot to make a payment for a month because your baby was sick or you were off in Nigeria. That should be easily explainable," says Kreider, of Century 21. Many who bungle their credit imagine that their errors will mean automatic rejection. In fact, many minor credit issues can be handled through carefully drafted letters that explain the circumstances.
No. 3: Hunt for strong advocates in a lender and realty agent.
"The lender is your compass," says Kreider, who believes that the financial aspects of a home purchase are best turned over to a lender with a passion for helping the buyer overcome any obstacles faced on the road to loan approval. Before you shop for a home, put your energy into discovering a tireless lender who honors your aspirations enough to persevere.
Kreider tells of one first-time buyer -- a single mother supporting her family on an executive secretary's salary -- who struggled for nine months to reach her housing goal. To find a likable home she could afford, it took the single mother nearly 50 house-shopping outings. "She got very discouraged that she would never find anything right in her price range. But I told her, 'We'll just keep looking,'" Kreider recalls.
No. 4: Consider slight variations in your housing expectations.
"Be flexible about what you're looking for. You may have to compromise," says Brian A. Ripp, the sales manager and co-owner of an office in the Realty World chain.
A single mom of a 13-year-old searched for a home for nine months, determined to find a detached property with a yard. Kreider helped her find a planned unit development where detached homes were selling in her price range. But she had to sacrifice one thing: the right to own the ground under her house. Rather than buying a traditional apartment or town house, she settled for a "condo house."
Still, the trade-off was worth it. "She's as happy as a lark," Kreider says of the executive secretary.
No. 5: Remember that the house you buy first need not be your last.
Some who are desperate to buy a home see it as their "last chance" abode. Consequently, they expect to fulfill all their ambitions there. They try to hold out for several amenities they may not be able to afford in a first home, such as a huge gourmet kitchen, a three-car garage or a master suite with a whirlpool bath.
You shouldn't surrender the top items on your priority list. If proximity to a well-rated high school is a core objective, don't give it up. Likewise, if a bedroom for each of your two children is a high priority, stand firm.
"You've got to have your goal for a home in mind clearly," Tayler says. Still, you ought not let a quest for perfection cause you to fail again. A home that meets 75 percent of your preferences now could be much better than waiting for the 100 percent winner you may be unable to acquire, if ever.
To maximize value, you may wish to consider a home discounted to your price range by virtue of needing inexpensive cosmetic improvements, such as paint, carpet and new flower beds. A spouse who stays home to care for school-age children "can make an enormous contribution in sweat equity by gardening, painting and polishing the brass," says Tayler, who owned her own realty company for 14 years. "Consider the first house to be the launching pad for the next one."