Our Bad Credit Didn’t Stop Us From Buying Our First Home

Photo courtesy of Robbert van der Steeg’s photostream via Flickr

We somberly followed our Realtor through the house. Me with my hands thrust deeply into my jean pockets afraid to touch anything, my husband shaking his head in disgust. We nearly tripped over each other in our rush out the back door and get some fresh air into our lungs. After traipsing through the snow to a few feet away from the house, the three of us made eye contact and unanimously said, “No”. After chatting for a few minutes, we took one last, deep breathe before heading back inside and making a non-stop, fast-paced beeline for the front door. On our way past the owner, we smiled and thanked her while our Realtor hastily explained we were in a rush to make our next appointment on time.

Afterwards, as we jumped into the car, our Realtor immediately began bringing us up to date on the next house we were about to see. We saw several more houses that day and over the next two weeks, but nothing really caught our eye although some did fit our special requirements.

Photo courtesy of Zephyrance’s photostream via Flickr

All this happened way back when our kids were still little – 2 and 5 years old. These days it’s common for Realtors to represent buyers in real estate transactions. Back then it was a more of a rebellious move. Our Realtor (I’ll call him Sam) was taken aback when I first approached him about representing us as a buyers agent. He was only vaguely familiar with the whole concept and he wasn’t sure how it was different from being a seller’s agent. I explained what our expectations would be and offered to pay him cash for his time if we didn’t buy a house. To us, that felt like the fairest way to compensate for his time since our credit was horrible. Fortunately he was open to this new way of doing business, plus he had a wife and small children to feed and I’m sure that played a part in his decision, too. I put the terms of our agreement down in writing and our signatures sealed the deal.

Our bad credit was a result of us going way overboard with the credit cards right after we were married. There was never any need to apply for new credit cards because they kept appearing in our mailbox! And, like so many young couples, money management was a skill we hadn’t been taught. Since we were so deep in debt and struggling to keep the payments current, we knew there was no way we could get a mortgage. So owner finance was our only option. But sometimes searching for a good owner finance deal is like searching for a needle in a haystack.

We met about a dozen Realtors before meeting Sam, never mentioning our credit situation to any of them. They all showed us at least one house, but Sam was the only one we felt was completely honest and aboveboard. He came across as sincere and genuine from the very beginning and our instincts that he was the one we were looking for were spot on. At that point we knew our search for the right Realtor was over and our plan to buy had been set in motion.

We gave Sam the respect he deserved by sharing the truth about our credit situation. That way, he knew going in what type of properties to show us. For example, the most important criteria was for the seller to have enough equity in the house that doing an owner finance was actually feasible.

Now that you know the foundational details of our first home buying quest, let’s get back to the story. Here’s where it takes an unexpected turn.

Two weeks after our first walk through the house with the smelly basement, worn out carpets, rotting bathroom and kitchen floors, and ugly kitchen cabinets we decided to make an offer on that house. If we could negotiate a sweet enough deal, the negatives might become a little more palatable. After all, the location was perfect. It was only a short walk to the elementary school and it was on the corner of a cul-de-sac on a quiet street. We knew these points alone could work dramatically in our favor when it was time to sell. The outside paint, roof and back yard privacy fence were all in good condition and the house was structurally sound. It was the inside that needed an overhaul.

I called Sam and got an unexpected surprise. After telling him we’d decided to make an offer on that house, he said he had received a surprise call from the seller’s Realtor just moments earlier. As it turned out, two other offers had come in that day but the seller didn’t want to accept either of them. She wanted to sell to us. Apparently we made a good impression during that quick run through her house! Her Realtor was asking if we had an interest in buying her house.

Wow, what a moment! We met Sam at his office within the hour. At the time, we felt our offer was somewhat brutal. But, in hindsight, it was logical and win/win for her as well as for us. She was a recently divorced empty nester living alone with only her two dogs, a television, a cot and one lawn chair. Other than the one room she spent all her time in, the rest of the house and garage were completely vacant. According to the terms of her divorce, the house was to be sold and the proceeds split with her ex-husband. She accepted our offer immediately, without negotiating a single point. Her ex-husband didn’t try to negotiate either.

Suddenly we were just days away from owning our first home!

You’ll probably love this next part as much as we did. We offered a current fair market price taking condition of the home into account. It was a 3 bedroom, 2 bath house with a finished basement and 2 car garage located in a nice, well-groomed neighborhood and the terms basically went like this:

1. Owner finance for up to 5 years.
2. No monthly payments for the first year.
3. Interior rehab during the first 3 months of ownership – new carpet and paint throughout, new kitchen cabinets, new flooring in kitchen and bathrooms.
4. The rehab to be completed prior to taking occupancy.
5. Monthly payments for the 2nd – 5th year equal to the seller’s current mortgage payments. (Their payments were about 25% what we were currently paying in rent at the time.)
6. Refinance before end of the 5th year, pay Realtor’s commissions and sellers in full at that time.

It all happened so fast. We were amazed how easily everything fell into place and incredulous when the seller “chose” us to buy her house. We became homeowners in less than one month – even with bad credit!

1. After the celebrating was done, we got down to work and immediately ripped out the smelly carpets.
2. After consulting with a professional on what it would take to get the urine odors out of the walls and floor decking, we also did that ourselves.
3. We hired a contractor to come in and replace the rotting kitchen and bathroom subflooring.
4. New kitchen cabinets were installed by a professional.
5. An airless paint sprayer was rented and we sprayed the entire interior ourselves. (What a mess – LOL!)
6. Finally, our pretty new carpet and vinyl was installed by the carpet company.

The whole rehab process actually went much more quickly than we expected. After we moved in, Sam put us in touch with his favorite mortgage guy. (I’ll call him Wayne.) Wayne was another guy with integrity. He didn’t have a problem working with us over the next few months to get our credit straightened out so we could qualify for a mortgage when the time came. He was patient and explained things in simple terms.

After a few years had gone by, we decided to sell that house. It sold in less than two weeks for a great price and we walked away with a tidy profit.

There you have it. Can you do it, too? That depends on you. The only things different in the market between then and now are the massive number of foreclosures and the unstable property values we’re seeing in some major areas. But that doesn’t mean there aren’t good deals to be had out there. It only means there are two more aspects you need to take into account before choosing an area to purchase in. It’s a buyer’s market right now. When we bought our first home all those years ago, it was a seller’s market. Real estate is cyclical. Things are going to settle down and it’ll be a sellers market again before you know it. Be ready. Get into position now to benefit financially when the time is right.

Good credit, bad credit, no credit.
If you want to buy a house, make it happen.

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