Poor Credit Clouds Hopes For a Bargain

Belt, 33, seeks other benefits, mostly psychic ones.

While Dozier has owned two homes previously, Belt has been an apartment dweller most of her life. She yearns for the comfort and security of homeownership.

"I grew up in an apartment and my parents bought their first townhome when I was 12," said Belt, who was raised in Prince George's County. "There are so many issues with apartment living. . . . We're looking to have a family soon and living in an apartment is not going to be comfortable."

That is why the couple plans to set aside $2,000 a month in savings after their wedding in May. By October, they should have $8,000. They thought that would be a decent down payment on a house.

But that is not nearly enough for their situation, Glassman told them.

"That's almost like having no money down at all," which will mean expensive financing terms for a mortgage, Glassman said. The more money down, the better the terms.

"This couple is cash-flow positive, they can actually save $2,000 a month, which is terrific," Glassman said after speaking to Dozier. They can fatten up their down payment to a much heftier $50,000 if they wait just two years after their October target date.

The benefit of having a larger down payment outweighs any savings gained from having the seller kick in closing costs, Glassman said. That's because even if the seller picks up the tab, the couple would pay 2 to 3 percentage points more on the large mortgage they would need.

Waiting a few more years has other advantages: It would help repair Dozier's credit if he is disciplined about his finances, Glassman said.

Under the nation's most widely used scoring system, called FICO, the median score is 723, meaning half of consumers score better and half score worse. The higher the number, the better the score. The maximum is 850.

Dozier's score falls below the median, at 571. It also falls below the cutoff point, usually about 660, that lenders typically use to distinguish creditworthy "prime" borrowers from risky "subprime" borrowers. Borrowers in the latter group generally pays a few more percentage points in interest on a mortgage.

Dozier can boost his score by paying his bills on time, since on-time payments make up 35 percent of a FICO score, and distancing himself from the negative information on his record. The longer Dozier stays on track, the less damaging his bankruptcy and late payments.

Most negative information on a credit report, such as a bankruptcy, has a life of seven years. For the FICO score, however, the most critical period is the most recent one to two years.

"In time, [Dozier] should be in a much better position to obtain a higher quality loan," Glassman said. "If he enters the subprime market, he's going to pay for it."

Besides, given today's lending climate, Glassman highly doubts that Dozier could get even a subprime loan. That is because some subprime lenders started toughening up their lending standards after the housing market cooled, and more borrowers began missing payments and defaulting.

For all those reasons, Dozier and Belt decided they can wait.

"Two years should pass in no time," Dozier said. "Hopefully, we'll one day be cash rich instead of house poor."