Expert: Dick Dennis - 7/23/2006

Question
my girlfriend and i are looking into buying our first home. most likely we can only afford a condo, as we live in san diego county, california, and our credit scores are lousy (but i've recently improved from 475 to about 562 (experian)(not sure of hers but it's under 600 as well).

i am going to buy a used car from budget car sales this coming week valued at about $6000, as they assure me my payments will be reported monthly to all 3 credit bureaus, and with auto payments i'm certain all will be on time. they can only offer me 23.9% loan, but my credit union says after 9 on-time payments they will refinance that for me at a better rate.

okay so the home, the home. are there mortgage brokers or banks that will offer us a loan with our awful but improving credit? (for the last year or so we have been diligent about on-time payments to all, and we are extended in overall debt only about $3000. combined we gross about 70,000 annually. we want to have both of our names on our new home.

upon the calculations recommended by suze orman, we can only afford aout a $240,000 home (thus the condo limitation). so the (main) question again is will anyone lend us 240,000 to 250,000 in our situation, and if so can we keep the monthly payments under $1500. we will most likely refinance whatever loan as soon as our scores improve to over 700.

thanks for your time.

Answer
I am sure it is the furthest thing from your mind, but one thing you should do AT THE TIME YOU BUY ANY PROPERTY, is to create a WRITTEN agreement that stipulates how one party is going to buy out the other, under what terms, etc.

Why? Because I have seen so many boy/girl friends relationship wind up in the toilet and one of them decides to skip and makes it hard for the other to catch him/her so the property can be sold. Since you are not buying the property as husband and wife (California is a community property state), with your credit scores it doesn't take too much imagination to see one of you change your mind and skip. (I'm just being practical, not insulting).

You should also be aware that if you do improve your credit scores and later on qualify for a better loan, you should realize that at that time you most likely will still be paying more on your monthly payments because interest rates will likely be higher (which means it would be even higher if your credit scores were not improved). So, unless the price of real estate is down from now, you will be responsible for a larger loan. You would have to have good credit for at least three years for a bank to willingly want to lend you money for a home at good rates. Yes, they would lend you now, but at a higher rate.

San Diego County is one of the counties property values are expected to sink. So be aware and take your time picking out the property you want. You just might be able to find something you really like for less than you thought.

I do wish you well.

Dick Dennis               dixiedee13@aol.com