Homeownership was a mere two weeks away for Angelo and Kathy Bell and their two daughters when their lender--whom they had found through the Internet--backed out.
The reason? Bad credit.
Angelo and Kathy had a string of late payments, some accounts that had gone into collection and a car repossessed in 1998. Now all of that would have to be cleaned up, including payment of the $7,000 debt on the car to a financing company, before they could be approved by the lender.
"Our [loan] has been denied," said Angelo, 37, an information technology manager, halting what was to be a 38-day escrow on a $179,990 home in Moreno Valley. Kathy's dream of moving out of their 880-square-foot Miracle Mile apartment into a 1,734-square-foot home with generous closet space is now on hold.
And Angelo's desire to provide a spacious home for Kathy and daughters Israel, 2, and Cimone, 15 months--complete with a family room, a den and a formal dining room so they could host Christmas for the extended family this year--will have to wait.
"We're going to have to regroup," Angelo said, "and try and look at this from a new perspective."
The Bells are still reeling from a time shortly after they were married in 1996 when they both lost their jobs. Consequently, after Angelo's severance pay ran out, bills went unpaid and debts started to add up.
Around this time, their 1992 Mercury Sable was repossessed. A few months later, even after they both got on their feet, Kathy, who was pregnant with their first child, was in a car accident that resulted in bed rest and her going on disability. Again, the budget was tight, as the couple lost Kathy's $28,000 annual salary.
"We didn't have a plan," Angelo said. "We would think about savings, but then something would always come up."
But in the last few years, as the Bells have apartment-hopped to find more space for their growing family, they have made attempts to restore their credit--hoping they could clean it up enough to trade in apartment living for homeownership.
About 1 1/2 years ago, Angelo started tackling the old debt--one bill at a time. He started sending out letters--more than a dozen--to agencies asking for time to repay old bills. In fact, the couple thought they were starting to make financial progress--so much so that they decided to live on Angelo's $61,000 annual gross income and have Kathy stay at home with the kids.
They even managed to save $6,000--money they had hoped could be used toward a down payment on a home. Finally, they thought they were emotionally and financially ready for homeownership.
Through savvy use of the Internet, the Bells explored different neighborhoods in the Greater Los Angeles area and learned they could afford their dream home in Moreno Valley--even though it would mean up to three hours of daily commuting for Angelo, whose job is in Marina del Rey.
They also found a real estate agent online, and soon the couple--with a letter of conditional approval from a lender--were touring houses.
They found one they loved, made an offer and, on one giddy Friday afternoon, learned they had gotten the house.
But 2 1/2 weeks into escrow, and after further review, the lender backed out, saying that the Bells would be too much of a risk.
Now the Bells must find a way to clean up their credit report--including some items they are disputing and say should be removed--and repay the $7,000 debt on the car, which could set the couple back months or more. And they will certainly lose the house they loved. But all is not lost for the Bells.
"There is hope for Angelo and Kathy," according to Jennifer Livingston, a 22-year expert in the mortgage banking business and vice president and regional sales manager of Union Bank of California. But, she added, homeownership may take time. "If [they] dream of owning a home," she said, "then the patience will really be worth it."
Although a quick fix for the Bells might be to continue searching out a lender willing to make them a loan, Livingston recommended against that.
"There is someone out there today that would be willing to make them a loan," but at a cost, she said. Consumers who are considered higher risk to lenders have to make up that deficit with a loan that is not very attractive, she said.
Loans such as these, according to Livingston, can be offered at much higher interest rates, require more points for closing and may have to be refinanced in a few years. Other options offer manageable adjustable rates to start, and then may jump as much as three percentage points a year, quickly becoming a financial hardship.
"For someone who is just trying to buy a new home, this is an exorbitant way to do so," Livingston said. "These types of loans will certainly drain any savings the Bells have had" and make purchasing necessities like carpeting, furniture or appliances nearly impossible, she said.