by Ted Sherman

Created on: February 05, 2007   Last Updated: April 13, 2007

Oh, sure! If you believe it, I have a bridge in Brooklyn I'll sell you cheap. Of course, a realtor will tell you it is possible to get a home loan with "lousy" credit. The realtor is interested in just one thing ... commission ... and every sale, whether to a Donald Trump or to an underemployed fast food clerk represents income. Not that they're bad guys. Real estate is always a risky business and today's market is dropping like a stone. But if you need a home loan, you must brush aside all kinds of promises and ads from realtors and banks and look at your situation realistically.

First, why is your credit "lousy"? Did you do something illegal, serve time in jail, were unemployed for a long time or have a history of failing to pay your debts? If you've caused troubles for yourself and others, or have no credit history at all, you're definitely a credit risk. No matter if you've promised to behave yourself in the future and have secured a well-paying job, the poor credit rating will follow you all the days of your life. Or at least for seven years.

So, you've found a home you like and want to finance it the usual way, something down and the rest as a home mortgage. An eager realtor will assure you that getting a bank loan is possible, despite your bad record. And the bank or mortgage lending company agrees. You're aware that you're a bad risk, right? So, why are they so eager to give you a loan? For the same reason the realtor took you on as a client. They can make money from you. Lots of money. While most home buyers today can get mortgage loans for five or six percent, a "lousy" credit applicant will have to pay significantly more, from about eight percent upward. It doesn't sound like much, but over the life of the loan, it can be many thousands of dollars more than the good credit buyer will pay.

There's another factor that most starry-eyed home buyers don't take into consideration, especially those who have failed before to meet debt obligations. If that new job is terminated or some other financial disaster happens, the lender will foreclose on the loan. That means the buyer gets kicked out and the lender takes over the property and sells it. Some mortgage companies and banks actually look forward to making money by profiting by this cruel, but legal rip-off.

The advice, particularly to young people, is to establish a history of good credit. Or if mistakes are made, try to repair the damage as quickly and honestly as possible. Job security these days is not a assured as it once was, when most people went to work for a company and retired from the same company 40 years later with a gold watch and a paid-up home mortgage.

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