Three tips for buying a home on shaky credit

It's a buyer's market, they say. You can get a house for a really low amount of money, they say. In fact, they say, it's a wonderful time to purchase a home.

(Who are they? I'm not sure, actually. But I know that they say this sort of thing a lot, and besides, it's a useful device we writers employ when we don't quite know how to begin writing.)

Anyway, I've been wondering -- with banks tightening their policies for lending and being reluctant to give anyone a loan, is it really a buyer's market if people aren't given home loans so they can buy?

Ernestine Crews is the founder and president of eCrews Enterprises, which is what she calls a wealth building academy and opened last month. And Crews, who hosts "The Road to Wealth and the Guide to Financial Freedom" on KLSX-FM in Los Angeles, says, "The easy lending with low FICO scores -- the party is over. If you don't have prestige 700-plus credit, you're going to have a difficult time."

Well, sure, tell me something I don't know.

But then she did.
Tip #1
If you have credit as low as 580 and are having trouble convincing a bank to give you a home loan, sometimes you can offset your low score if you have enough in reserve in your 401K. (I'm not saying it's a great idea to use your 401K as a way to pay for your house, and Ms. Crews isn't either. Just that it's an option and possibly a bad one. I can just picture my fellow blogger and ultra-responsible accountant Tracy Coenen starting to write me a stern note right now.)

Tip #2
Ms. Crews also says that if you can offer a large down payment, of at least 20% down, and verify your income with W2's, "there are hard money lenders who are non-traditional and their guidelines are more lenient, but may accept lower FICO scores." But she warns that by taking out what is literally called hard money loans, you'll walk away with a higher interest rate, a prepayment penalty and a choice between interest only or a fixed rate loan. In other words, an option, but again, not a great option.

So what can you do, if you have shaky credit, but a good job, and you really want a home? You're probably not going to like it, but...

Tip #3
Wait it out, suggests Ms. Crews, adding, "This is a good time to spend time now, learning how to enhance your credit."

Her advice is a wee bit self-serving, since that's what eCrews Enterprises does. They offer classes on wealth management and teach people how to improve credit scores. Still, self-serving or not, it's probably the best advice out there for someone who is almost, but not quite, ready to buy their own home. After all, not waiting to improve their credit is how a lot of people got into this mess in the first place.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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