If I could graph it, I could show that my receipt of questions like the following has increased steadily and proportionally as a function of the disappearance of subprime mortgages:
I really would like to purchase a home within the next six months. I have a poor credit score because I was laid off work for quite some time with adversities (e.g., repossession, credit collection, defaulted student loans, etc.). Do you honestly know of a mortgage that would assist me in improving my score while trying to qualify for a decent mortgage?
I just graduated from college, but have no income other than a weekly child support check I receive from my ex, totaling $400 per month. Are there any programs you know of that can help me buy a home?
So, here’s the deal, folks — as is my wont, I have a short answer and a long answer. The short answer is no — if you have no job, or haven’t been steadily employed for the last year, you have "poor" credit, and you have no financial assets (e.g., cash you’re willing to put down), you cannot get a mortgage on today’s market.
But I feel that I’d be remiss not to address the larger issue here: the issue of premature homebuying. This is putting the house before the horse, so to speak.
I’m not sure exactly what motivates so many people to crave a home before they have an income, or when they’re just coming out of a financial crisis, before full recovery.
Actually, I take that back. Maybe I do know. The cultural messaging in America about homeownership — both its inherent value and that any and everyone should be able to own one now — is so deeply ingrained as to be a mental virus.
And, FYI, this is not me blaming, judging or chastising the folks who ask these questions. The fact is that our mortgage market and the availability of cheap, easy loans for anyone — with bad credit, no downpayment and no income — created the unreasonable expectation that anyone should be able to buy. And they should.
But the unreasonable piece is that anyone should be able to buy — no matter their financials — at any time. And, well, they shouldn’t. We shouldn’t.
Notice that I’m not being asked for a two-year action plan to help them get financially fit for homebuying. People are not asking me how to save, how much to save, how to improve their credit, and otherwise prepare for homeownership. What they’re asking is how they can buy now, despite their situation.
They want a mortgage magic wand, a real estate red pill that shows them the escape routes from the matrix of standard mortgage requirements. This is very much related to that throwback of social ills: "instant gratification."
These people are not bizarre. What they seek was once possible and, despite all the financial reforms, could very well be possible again. So this discussion cannot be only about what’s possible; we have to move it to being about what’s ideal.
And what’s ideal is that if you have no job, no income and bad credit, that you wait to buy a home. Wait until you have a steady, reliable income. Wait until you have been able to resolve your credit problems, and have established good habits of paying your bills on time, every time, so that your credit score recovers.
Be strategic, for sure — even be aggressive. Work two jobs to pay your collection accounts off sooner, and learn everything there is to learn about the algorithms underlying FICO scores, or work with a mortgage broker long in advance of buying so you can get the maximum credit score boost from your efforts.
Get informed about the first-time-buyer and downpayment assistance programs in your area. If you feel urgency, do these things now.
But when it comes to actually buying? Wait. If you don’t, I fear you’ll end up in the sorry situation of foreclosure or other real estate distress, which will only compound your issues.
As great a time as it is for buyers right now, it’s only ever as good a time to buy as is good for your life and your individual situation. Forcing premature homeownership in violation of the divine order imposed by first saving up for your downpayment and building good credit is a huge part of how we all ended up in the recent housing recession.
And that’s because the credit, the income, the job — it’s not about having these things for their own sake. To steal a phrase from Chris Farrell, author of "The New Frugality: How to Consume Less, Save More, and Live Better," (who in turn stole the phrase from Randy Pauch’s "Last Lecture"), having good credit and a steady job and money in the bank is really a head fake.
They’re a head fake, a proxy, if you will, for the habits you develop along the way, that you can’t just get by taking a class — habits like responsible bill payment and sound personal financial and career management.
Like I said, if you have no income, no assets and bad credit, you can’t get a mortgage on today’s market. Yesterday’s market, perhaps. But yesterday’s gone, as the song says. What’s not gone is tomorrow, and you have the power to act today to equip yourself to qualify for a mortgage tomorrow (or next year, or the year after that).