CREDIT: For People Who are Thinking About Buying Real Estate

Over and over again, I am running into people who would like to buy real estate and find that they cannot get approved for a mortgage, because they have credit issues. I know this is not some big revelation. I know it is the headline in the news everyday right now. Some of these credit problems are big and will take years to straighten out and others are small items, which can be fixed in a 3 month time period. It may seem hopeless, but it doesn't have to be. What should you do if you find yourself in these circumstances?

First, don't delay and put off your credit problems. It is very easy not to open the mail, screen your calls and forget that the problem exists, but there are solutions. There are non-profit credit counselors available for help in these matters. They can help you straighten out your credit, inform you about the home buying process, and help you qualify for grants if you are eligible. I had one client go through a program, get her credit straightened out and get pre-approved for a mortgage by virtue of participating in what was available at the credit counseling agency. Further, the sooner you start, the sooner you can get your credit cleared up and approved for that mortgage. The next thing will be to find the HOUSE!

Some people suffer from another credit problem and that is no credit. They have never had a credit card, a utility bill, car payment or even a cell phone bill. You do need to establish some kind of credit to get pre-approved for a mortgage. You may want to apply for a major credit card, use it and pay it off in full (don't create a credit problem), get a cell phone, etc.. Credit counselors can also help you when you find yourself in this circumstance.

The Department of Housing and Urban Development provides a list of approved credit counselors around the country. Please, see the following link for Philadelphia HUD Approved Housing Counseling Agencies. At this link, you will also be able to search for credit counselors in other areas.

Second, I would start putting away some cash. These days, you will most likely have to come up with at least 3% of the purchase price for a down payment, appraisal fee (could be as much as $399), inspection fees (in Philadelphia, I would estimate $450) and any other closing costs not covered by a seller assist. If you do not get a seller assist, it is safe to estimate that the closing costs will be 7%-9% in Philadelphia.

Another thing to consider, in this process, is getting your paper work together. Get copies of your bank statements ready for the mortgage company, copies of pay check stubs, and copies of your tax returns. They will be asking for them between the pre-approval and the mortgage commitment. Be prepared to give them any updated copies of the aforementioned documents and copies of the resolutions of any credit problems you may have had. Unless, they have approved a "gift" of money, they are going to want to see that the money you have and some reserves have been in the bank for 2-3 months.

I would stress above all, do not delay. Get working on the problem so that there is a solution in front of you and a time frame laid out to solve the problem. The sooner you address these problems, the sooner you can be in your own house.

Grants and Credit Counseling

I don't know how it works in other parts of the country, but in Philadelphia, there are multiple types of Grants for which a buyer can qualify. Most of them are income related. Some come from the City of Philadelphia, Some from the State of Pennsylvania, and some from lenders.

What a buyer must be aware of is that the ones from the State and City require credit counseling. In fact, the counseling must be done before an offer is submitted. Thus, if you are low income or moderate income and pursuing one of these grants for closing costs, you must be very proactive and get in to meet with a credit counselor. The lenders may also require credit counseling, however, that must be determined on a grant by grant basis. In Philadelphia, there are many of these groups, which provide the counseling. There are too many to list here. Some are quite good and responsive, and some are not. Either way, be pushy and get in to see the counselor so that you can get on with buying real estate.

An agent in my office recently submitted an offer without realizing the counseling had to be done. So far, they are okay. Her buyer is on top of everything and the two have been scurrying to get everything done. They called all over to get the counseling done. They finally found a counselor who would meet with them Saturday night. She had to drive her client to the appointment so she ended up in attendance.

She said the Credit Counselor was very bright, but spent a good deal of time bashing Realtors. Misrepresented what we make. In fact, doubled it (what we make). Told the buyer not to tell the Realtor if they really liked a property. Told the buyer not to use a home inspector recommended by the Realtor, because they would just pass the house in order to get the sale pushed through. Also, told the buyer not to sign a buyer broker agreement. I have so many issues with what this man said and I was not there! I will address these issues in separate entries!