- The Washington Times - Wednesday, April 26, 2006

Q:My wife and I have four children and have always rented. We recently moved to

Fairfax County and are shocked by the prices of homes. We are currently renting a house for $1,850 per month, plus utilities.

My credit score is only about 500 due problems in the past that are now cleared up. My wife’s credit score is 650. Hers would be better, but she has only established credit for two years in this country. Our combined income allows us to pay this rent and utilities with no difficulty.

Do you think we can qualify for a mortgage to buy a house in Fairfax County even with our poor credit history? We do have savings.

A: The subprime mortgage market is huge. If you have enough savings for a 10 percent down payment, you can probably find a program that would accept your situation. Undoubtedly you will have to accept the fact the your interest rate will be significantly higher than programs that only accept “A-plus” credit. Let me suggest two ways to approach this.

Most subprime programs have set criteria. If your situation falls within the program’s parameters, you will qualify for that program.

For example, one program might require that the lowest credit score not fall below 600. The required down payment might be 10 percent. The rate could be 8 percent that’s fixed for the first two years.

Since your credit score is 550, you would not be eligible for this program. Another program might require the same down payment but would allow a credit score of 550. Expect the rate to jump. Applicants who are deemed to be the riskiest will be paying a higher rate.

If I were your mortgage broker, I wouldn’t look at any subprime programs, at least initially. Your wife’s credit score, at 650, is not great but certainly not considered to be terrible. Instead of looking at the subprime market, I would investigate the so-called “no-doc” programs, where income and assets are not stated on the application.

I might suggest that you and your wife take title to the property but your wife apply for the loan because your credit score will kill the chances of getting any kind of conventional mortgage.

There are some no-doc programs that allow a score of 650. Expect to pay a rate that will be a little higher, but these programs will be far better than the subprime deals that accept a 550 score.

Unfortunately, you touched on another problem, and that’s the price of homes. If you are paying $1,850 in rent, plus perhaps $250 in utilities, your total housing obligation is $2,100 per month. After the tax benefits of homeownership, this sum will allow a mortgage of only about $270,000. Assuming a 10 percent down payment, your price range should fall around $300,000. There are not a lot of houses in Fairfax County that will accommodate a family of six for $300,000.

I’m not necessarily recommending that you continue to rent or do whatever it takes to buy. It’s difficult to give good advice without knowing all the details, so I’ll stick with my usual advice when I don’t know the full story: Seek out a reputable mortgage broker who can decipher your situation and make recommendations that are most compatible with your objectives.

Henry Savage is president of PMC mortgage in Alexandria. Reach him by mail (henrysavage@pmcmortgage.com).

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