Impact of bad credit on obtaining Home Loans Bankruptcy?

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Q. I'm hoping some of may be able to share some of your knowledge and experiences pertaining to bad credit and obtaining home loans. First, a bit of background: In 1995, before we were married, my wife enrolled in a debt management program at Consumer Credit Counseling Services (CCCS) in San Francisco to consolidate her overwhelming debt payments at the time (she was still in college and had racked up $15k in plastic debt over the years). She was on track to pay off all balances over a course of 5 years, but due to an inheritance she was able to pay off the entire balance by the end of 1997. As fortuitous as that was, CCCS was apparently remiss in making adequate final payments to all her creditors, and as a result, even though all balances are now zeroed out, there are several 30-day- and 60-day-late marks on her credit report, the last one occuring November 1997. I have recently written a letter to CCCS apprising them of the situation, and am even considering legal action, but after some investigation into the legalese of the debt management plan, I doubt they can be held responsible. (And I even doubt if CCCS would be able to correct the blemishes even if they wanted to.) So I am assuming the worst, that the blemishes will stay on for the next several years. We are (now) married, in our late 20s, my credit is fine, our income level and savings base is quite comfortable, and we are both steadily employed (teacher for 2 years, and software developer for 5 years). In short, if it weren't for those blemishes, we'd be an ideal candidate for a lender to loan money to. So, my question is, will those marks significantly affect our chances of obtaining a home loan in, say, 2 years? (Which would be 3 years after the last blemish.)

A. 3 years may not be long enough. However, you could quite likely qualify for a loan based off of just your income and credit. They'll let you do that. Can your wife provide of payment and her contract with CCCS? She has a right to have a 100 word written explanation in her credit report regarding the late pays. She needs to contact the credit reporting agencies with the explanation (send it certified). In our area of the country you can get a loan for a home even after a bankruptcy if your credit has been clean for 18 months. So I would think that 3 years should be sufficient. Let your loan officer know about your situation so that he doesn't think you're hiding anything from him/her. Hopefully you can back up your explanation with your canceled checks. I recently talked to the president of a large local mortgage company (who also happens to be my cousin). He said that all they care about is the last two years. As long as you have the income and your credit is clean for two years, there isn't a problem. Since most home loans are still being underwritten by humans (as opposed to computers), you should have a chance to explain these derogatory items and appeal to someone's sense of reason. Since these will have happened years ago when you apply for a mortgage, and if you don't make a habit of late-pays presently, I really doubt these will affect your application at all. We had a 60-day late pay on our credit report (LONG story which I will omit) and all we had to do was prepare a "statement" explaining it which was included in our file. That was the first and last time it were mentioned. When my husband and I got married 2 years ago, we applied for a home loan. For the sake of not printing a very long story, I'll just say that my husband had terrible credit. I, however, had impeccable credit, never being late on a payment,etc. It was my credit history that enabled us to get the home loan and apply for credit cards. He was required to pay all the bills that he had outstanding before we got the loan. I'd say you have a very good shot at getting a home loan. This is the problem of the loose times in which we live. A return to fiscal probity and economic sanity would not encourage the acquisition of debt: people should not attempt to buy what they cannot afford: pay CASH on the Barrelhead for housing, and rent until you are able to do so: this will encourage the habit of thrift. What may help (it certainly won't hurt) would be to ask CCCS to write a letter explaining the "blemishes" and to put it in your credit report. Depending on the lender, they may take that into account when processing your loan application. What will certainly help your chances the most would be if you could save up enough money to be able to put 20% down on the house. It is often the insurance underwriters who decide who gets loans and who doesn't, and putting 20% down will knock off PMI (private mortgage insurance) and more more obsticle to you getting a loan. My husband and I were in a similar situation, although he managed to avoid the "blemishes"...he had racked up a lot of credit card debt, due to being in school with inadequate financial aid, and then a lot of doctor bills. While that has been paid off, he hasn't been continuously employed for the last 2 years (due to the illness that caused all the doctor bills). They were not going to give us the loan, even with 15% down, but everything was fine with 20% down. At worst, so long as you find a house that will put you within Freddie Mac (I think that's the right one) guidelines for a loan (usually 28/33 debt ratios, ie 28% of your income can be the house payment, including insurance and property tax, 33% of your income can go to debt payments, including home loan and credit card minimum payments, etc) you should be able to find a bank that will give you the loan. You might have to put down a little more, or you might have to pay a slightly higher interest rate, but it shouldn't be a real problem. Right now, there are banks offering 1st mortgages with no credit check and no income verification! Interest rates for these are a point or so higher, but even those rates are low compared to what my parents paid when they bought their last house.

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