Help For People With Bad Credit Who Need a Mortgage

When people with bad credit, need a mortgage, they can find themselves in a bind. Here is an e-mail I received from Pilgrim Patty not long ago:

I am hoping to buy a home in a different state. My current mortgage is just about paid off. My kids and I need to get away from the problems here.

My credit is fair but I need to know if I stand even a chance of getting another mortgage in a different state with fair credit.

Patty went on in her e-mail to tell me that she’s been working hard to repair her credit scores. She sounds like a good person trying to do right by her kids.

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What is the best course of action?

She has a number of options. They vary in degree of risk. Let’s first clarify her priorities:

First and foremost, Patty needs to get out of Dodge pronto. If the environment she’s in is toxic to herself and children, she’s got to get out regardless of the financial consequences.

The least riskiest move would be to sell her home now. Then, she could move and get settled in her new home. In order to keep risk low, she should rent – not buy now.

Even though prices are low, she’s moving to an area she may not be familiar with. She might not like it. Keep the options open. Rent first when you move to a new area. That’s my motto.

So the least risk option would be to look for a mover – not a mortgage right now.

Next up the risk scale would be to rent her home out and rent another place in the new town. She should do this only if she can’t sell because of market conditions.

The risk is if the renter splits and she’s on the hook for the mortgage on her home and the rent in her new town. I would suggest she take this course of action only if she can’t sell.

If Patty insists on buying a new place now, it’s even more important to sell her existing property. If that is not possible, Patty must rent the existing property out and refinance it in order to have the down payment for her new home.

I really don’t like this idea at all. It exposes her to too much risk. She might not like her new place. The renter might trash her existing property and/or not pay rent. Her new job might not work out. Too many risk factors.  plus, in today’s market, she may find it very difficult to find anyone willing to loan her money at a fair interest rate.

Time is on her side. Her existing property is almost paid off. Also, she’s taken important steps to repair her credit.

Move and get established in a nice place that is good for your kids Patty. Rent for awhile.

The worst that will happen is that she’ll have even more equity in her existing home and her credit will improve even more by the time she’s settled in and ready to buy again.

The better her credit and the lower her risk, the lower her mortgage interest will be.  If none of this advice works, the last resort would be or Patty to pick up a phone and start calling mortgage lenders. Talk to as many as possible.  Get quotes.  Then, make sure to weigh the risk factors (new job, new town, having renters) before taking action.

Two more related hints for Patty:

1.  Make sure to keep a budget

2. Have the proper term insurance – this is critical especially since Patty is a single mom.

3. Don’t rush into debt relief scams in an effort to boost the credit score to buy the new house.

What advice would you give Patty?

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