Over and over again, I am running into people who would like to buy real estate and find that they cannot get approved for a mortgage, because they have credit issues. I know this is not some big revelation. I know it is the headline in the news everyday right now. Some of these credit problems are big and will take years to straighten out and others are small items, which can be fixed in a 3 month time period. It may seem hopeless, but it doesn't have to be. What should you do if you find yourself in these circumstances?

First, don't delay and put off your credit problems. It is very easy not to open the mail, screen your calls and forget that the problem exists, but there are solutions. There are non-profit credit counselors available for help in these matters. They can help you straighten out your credit, inform you about the home buying process, and help you qualify for grants if you are eligible. I had one client go through a program, get her credit straightened out and get pre-approved for a mortgage by virtue of participating in what was available at the credit counseling agency. Further, the sooner you start, the sooner you can get your credit cleared up and approved for that mortgage. The next thing will be to find the HOUSE!

Some people suffer from another credit problem and that is no credit. They have never had a credit card, a utility bill, car payment or even a cell phone bill. You do need to establish some kind of credit to get pre-approved for a mortgage. You may want to apply for a major credit card, use it and pay it off in full (don't create a credit problem), get a cell phone, etc.. Credit counselors can also help you when you find yourself in this circumstance.

The Department of Housing and Urban Development provides a list of approved credit counselors around the country. Please, see the following link for Philadelphia HUD Approved Housing Counseling Agencies. At this link, you will also be able to search for credit counselors in other areas.

Second, I would start putting away some cash. These days, you will most likely have to come up with at least 3% of the purchase price for a down payment, appraisal fee (could be as much as $399), inspection fees (in Philadelphia, I would estimate $450) and any other closing costs not covered by a seller assist. If you do not get a seller assist, it is safe to estimate that the closing costs will be 7%-9% in Philadelphia.

Another thing to consider, in this process, is getting your paper work together. Get copies of your bank statements ready for the mortgage company, copies of pay check stubs, and copies of your tax returns. They will be asking for them between the pre-approval and the mortgage commitment. Be prepared to give them any updated copies of the aforementioned documents and copies of the resolutions of any credit problems you may have had. Unless, they have approved a "gift" of money, they are going to want to see that the money you have and some reserves have been in the bank for 2-3 months.

I would stress above all, do not delay. Get working on the problem so that there is a solution in front of you and a time frame laid out to solve the problem. The sooner you address these problems, the sooner you can be in your own house.