- The Washington Times - Friday, August 31, 2001

Like some sort of goblin or ghoul, one's credit history can jump out of the past and scare off potential mortgage lenders. So does bad credit preclude homeownership? Will lenders always slam the door of your dream home in your face?

"No," says Gerald Beach, a credit counselor in Springfield, "but it will certainly take some time to get things back on track."

Larry Masterson and his wife, Mauve, tried to get pre-qualified for a home loan about a year ago after their landlord in Falls Church raised the rent.

With many years of excellent rental history and several years of on-time payment of bills, the couple didn't expect any problems. Mrs. Masterson, though, had run up some debt as a college student and a single mom. She hadn't taken her past problems into account.

"It was really humiliating," she says, "but the lender told us if I could just take care of those things and bring in verification of payment, they could probably help us."

The Mastersons began working hard to clean up Mrs. Masterson's credit record. A year and almost $10,000 later, the couple qualified for a loan and bought a home in Falls Church.

"It was difficult, and I was really ashamed," Mrs. Masterson says. "I never thought anything about it. But I am so glad to have that part of my past put in order."

Mr. Beach, who is with the nonprofit Credit Counselors of Northern Virginia, says people face credit problems largely because they cannot control credit-card spending.

"When every other letter in the mail is a credit-card offer, it's really hard to not get taken in by the idea of having a line of credit," he says, "but it's a trap many people can't get out of."

Mr. Beach worked in the banking industry for 20 years before turning to credit counseling. He says mortgages usually are denied when applicants have too much debt and not enough income or have too many late payments or credit write-offs.

A person who is turned down for a mortgage should immediately get a copy of his credit report and examine it, Mr. Beach says.

"And if you don't understand it, set something up with a credit counselor," he adds. "He can help you find the problems and maybe put you on a debt-management plan to work toward the goal of homeownership."

Dennis Hogge, a Centreville Realtor, says those who have credit problems and want to buy a house need to work out a plan with homeownership as the goal.

"Most people can't buy a home because they are not ready financially they don't have enough cash on hand and enough income," he says.

Mr. Hogge recommends meeting with a mortgage lender to find out what the requirements are for buying a home then work toward the goal.

If bad credit history is haunting you, though, working out a plan is only one step in the process.

Mr. Hogge says that after cleaning up credit, some can qualify for a high-interest lender but that could add to existing debt problems, and of course, such loans require more cash down.

"The great truth of the business is that people with bad credit history have little cash," he says.

Mr. Beach agrees, adding that saving money for a down payment and getting serious about putting one's credit history in order should be top priorities.

"And even if you clean up your credit enough to qualify for a mortgage," Mr. Beach says, "lenders are notorious for approving people for higher loans than they can really afford."

The classic situation: a "dream home" that has rooms empty of furniture "because they are barely scraping by to make the mortgage payment," Mr. Beach says.

There are several nonprofit credit-counseling agencies in the area that will evaluate credit problems and try to work out a payment plan.

"If late payments are your problem, a debt-management program would really help out," Mr. Beach says. "After 90 days of on-time payments, most creditors will mark your account current on your credit report."

Bankruptcy might seem to be the easiest escape route, but Mr. Hogge and Mr. Beach advise resisting the temptation. Like a proverbial plague, bankruptcy takes at least seven years to run its course for credit purposes.

"The best thing to do is get those bills caught up get on a payment plan even a small, slow plan," Mr. Beach says.

"In a year or two," Mr. Hogge says, "those same lenders will take a fresh, new look at you and reward that hard work and dedication."

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