College may be over, but learning isn’t

Friday, April 11, 2008 at 2:17am

Q: I’m a graduate student who will be graduating in May. At that time, I’ll be starting a full-time job and looking to purchase a home for the first time.

Because of some really stupid choices with credit cards in college, my credit score is pretty low. I’m working hard to pay off all of my debts, but this may take some time. I also have lots of student loans on my report.

I’m a little concerned about qualifying for a home loan. Will I automatically be turned down because of my poor credit history, or will I be stuck with a high-interest loan?

A: Congratulations on your graduation. However, this isn’t the best time to be looking for a house if you have poor credit and no money for a down payment.

These days, lenders want buyers to put down at least 3 percent of the purchase price as a down payment, plus have at least a month’s worth of expenses in reserve. You’ll also need cash for some of the closing costs. Many lenders want to see borrowers put down at least 5 percent to buy a home.

Will you be automatically turned down because of poor credit? It depends on how bad your credit score actually is at the moment. If your credit score is below 625, you might have a very difficult time getting any sort of loan.

Even if you are approved, your credit score means that you’ll be paying a much higher interest rate than someone with a good credit history and score. How much more? According to the numbers provided by MyFico.com at the end of March 2008, if your credit score is 760 to 850 (the top tier), you’ll pay 5.682 percent on a 30-year $300,000 loan. But if your credit score is 500 to 579 (the bottom tier quoted), you’d pay 10.242 percent for the same loan, or nearly an extra $1,000 per month for the same loan.

As a graduate student with plenty of debt, student loans and a poor credit history, I think your best bet is to focus on improving your credit score and paying down your outstanding loans. Housing prices will still be low in a year, but you’ll be in a much better position to take on that kind of debt.

Q: Last year, I put a down payment of $5,000 on a home with a local homebuilder. I put a contingency in the contract that I needed to sell my current house before I could buy the new house.

The builder came back with an addendum stating that I needed to remove the contingency from the contract or they would sell my house to another buyer. That was fine with me. My agent says that the builder will now need to refund my down payment. I called the builder and a person who worked at the builder said I would be getting my refund soon.

I have called and contacted the sales agent and builder since December. I still haven’t received my earnest money back. The builder stated that it would take up to 12 weeks or more to get my refund. We’re way past that now.

I will send a letter to the builder, but he already has two written requests from me for a refund of earnest money.

What other action can I take to rectify the situation?

A: I think it’s awful that your builder is exhibiting such bad behavior. But given what’s going on (or, what’s not going on) in new construction, you can imagine that the builder is trying to hold onto every dollar he can.

What can you do? You can sue your builder for breach of contract. You can also file a complaint against the builder with the state agency that regulates homebuilders or contractors, as well as the Better Business Bureau (bbbonline.org). You may also contact the local municipality where you were buying the home and see if they have a department that handles complaints against builders.

But I think your next step should be to talk to a good real estate attorney, who may be able to place a call or write a letter to grease the wheels and get you your money. In any case, your attorney should be able to guide you through your legal options.

Contact Glink at www.thinkglink.com

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