Q Dear Rick:
I have a situation that I hope you can help me with. About two years ago I was the victim of an identity theft. As a result, my credit has been ruined. I am working on correcting the situation but it’s going to be a while. The problem is my wife and I want to move. However, when I sat down with a mortgage company to get pre-approved they basically told me that I don’t qualify for a mortgage. The house that we want to buy is a house that is owned by a good friend of mine. The house was being used by his parents but they are now living in assisted living. He is willing to work with me but I’m not sure how to proceed if I can’t get a mortgage. I was hoping that you could give me some ideas.
A Dear Ray:
Restoring your credit after you’ve been subject to an identity theft can be a very frustrating process. It is always longer, more complicated and certainly more frustrating than it should be. That being said, unfortunately, there is not much you can do to speed up the process. Therefore, we have to look for alternative ways to finance the home.
Since your friend wants to work with you, one thing you can consider is to suggest a land contract. A land contract is where the seller is financing the purchase. Thus, unlike a mortgage company that must run credit reports and look at credit scores, the seller in a land contract doesn’t have to do that. What you may be able to work out with the seller is to do a land contract over a short period of time. In other words, maybe you have the land contract be a three-year land contract with a 30-year amortization. What that means is you make monthly payments based upon the fact that the loan is being spread out over 30 years; after three years, a lump-sum payment for the remaining balance is due. The presumption is that in three years you should be able to qualify for a mortgage. The land contract terms can basically be anything you two agree upon. It could be a five-year land contract with a 25-year amortization, as example. Of course, there are pros and cons from your standpoint.
In your situation the obvious pro is that you can buy the house you want today. Certainly, if that house is going to increase the quality of your life, and I hope it does, this is a great advantage of using a land contract. The downside, of course, is that mortgage rates will probably be higher when your land contract comes due; whether that’s three years, five years or whatever.
Depending upon your situation, another alternative you should explore is whether your wife may qualify for the mortgage in her name. Depending if the identity theft affected her she may be able to qualify for a mortgage in her name alone. Once again, this can have pros and cons. The pro is the fact that you can get a mortgage and lock into today’s low interest rate. The con – depending upon your wife’s income, the interest rate may be slightly higher than if both your incomes were taken into consideration.
One last note and that is a reminder to everyone to protect their sensitive information and put up as many roadblocks as possible to try to prevent identity theft. Because unfortunately when it does happen, it is not as easy to correct the situation as it should be.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org