Credit Conundrums
Require Desperate Measures

Question: I would like to purchase a multi-family home but my credit is terrible. I really put myself behind the eight ball in college with credit cards, but I'm paying down my debt and putting my finances in order. How can I get a mortgage despite my history?

-- Kevin, city not provided

Kevin: Your situation, unfortunately, occurs more often than most people realize. Many students have a careless attitude about credit that can hurt them later on in life.

First, start building a new and solid credit foundation. From now on, pay all of your credit-card bills on time. More important, take out a small bank loan and repay it early. This will help establish a new pattern of good payments. In addition, when you apply for credit, add an attachment to the application that says your previous credit missteps occurred when you were a student. Explain that your credit has been rock solid since you graduated.

The problem is that it may take several years before a mortgage lender believes you enough to give you a real-estate loan. So try to buy property using "creative financing," which is nothing more than having the seller give you the loan. In a typical deal, you still make the normal down payment and pay standard closing costs. But the seller will carry some or all of the mortgage. Look for properties that are owned without a mortgage, or where the seller has an older FHA or VA loan that you can assume, with the seller carrying the difference between the outstanding balance and purchase price. You can find properties like these, but it will take some hunting.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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