From Ask Lutz

Unworthy of Mortgage?

Dear Lisa,

I am trying to buy a condo/loft and through the process I've discovered that I have bad credit. It's not my fault either. I blame Citibank Visa and Discover card for giving me credit cards when I was 18 they're the ones that really got the ball rolling. So what can I do about it now? Also, I want to know how a middle class hard working girl is supposed to come up with a 20% down payment without the help of a "sugar daddy", trust fund or rich uncle?

Sincerely,

Unworthy of a Mortgage


***

Dear Unworthy,

Thank you for your fine question. You came to the right place. Of course, I am not an expert on home purchasing, credit issues, or finance in general. But I do have a cousin who is and I figure that’s almost as good. According to my cousin Dan, if a house or condo is in your future, the first thing to do is pull your credit reports from all three agencies.

You have admitted to having bad credit, so I would not be insulting you by reminding you of that fact. For the record, bad credit isn’t like having an allergy or an unsightly mole. Bad credit is an unfortunate condition that you did something to create. My first piece of advice would be stop blaming Citibank Visa and Discover Card for your problems. Do you blame the dentist for your cavities? There could be many reasons for your bad credit:

1. Late payments
2. Too many credit cards
3. High balances or high credit ratio (balance to available credit)
4. Failure to pay a bill
5. Too many inquiries on your credit
6. Bankruptcy

Dan says, when you get your credit report, first make sure there are not any mistakes. If you see a mistake, call the agency and tell them that they have to remove the mistake from your report. I say, you should also mention to them that they should stop making mistakes if they want to stay in business.

Next, you have to improve your credit by paying off your high balances and making your payments on time. If you have trouble doing things on time, you might consider hiring an assistant to serve that purpose. Of course, that money would probably be better served as savings for your down payment. Instead, why don’t you ask your mom if she would mind calling you up every month to remind you to make your credit card payments? My experience with moms, in general, is that they wouldn’t mind the excuse to regularly call their offspring to remind offspring that they’re not doing something that they should be doing.

In a nutshell, my cousin Dan is saying that you need three things to buy a house:

1. Money
2. A house
3. Common Sense

Forgive me if I’m wrong, but it doesn’t sound to me like you have any of these things. Therefore, for the time being I would put the house hunting on hold. Pull yourself out of the gutter (financially speaking): Pay off your debts, start a consistent savings plan and maybe a home will be in your distant future. I would love to offer you a free consultation with my financial consultant relative. But while Ask Lutz is a non-profit organization, my cousin Dan is not.

I recently saw a Sallie Mae commercial on this very topic. In the commercial, a very responsible looking woman passes by a shoe store and sees a pair of bright red pumps that she wants to buy. The woman pulls out her wallet, contemplating the purchase, and continues down the street. Right next to the shoe store just happens to be a real estate office with pictures of house listings taped to the window. The responsible looking woman begins eyeing the houses. Next, we cut to a close up of her wallet as she places it back inside her purse. Presumably, our responsible looking woman has decided to purchase a house, instead of the shoes. There is one major flaw with this commercial: A house costs a whole lot more than a pair of shoes.

Clearly, home buying is on the minds of millions of Americans with the recent plummeting of interest rates. However, just because millions of Americans are buying homes, doesn’t mean you have to. If millions of Americans were jumping off bridges, would you?

I hope I have been some help to you, dear reader. If not, please write a letter of complaint.

Best Wishes,

Lisa

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