Emailer wants to repair credit to buy a house again

Last week was a HUGE week at PeteThePlanner.com. Cision ranked me as the fourth most influential personal finance expert in the nation. I get a tremendous amount of email from people all over the country. It's one of my favorite parts of my job. The emails are always VERY REAL questions. They are specific, heartfelt, and quite vulnerable. And I always think there's something to be learned from everyone of them. We may not have the same problem (as the emailer), but many of us have the same spirit. We've made mistakes, we want a do over, and we want to to stop stressing out over money. We just want our lives back. The email below is the perfect example.

Hi Pete

I'll start by saying my wife and I have made some pretty terrible financial choices and need to do a much, much better job. We were not taught financial responsibility and while we tried (not with the best effort or result) to fake it we've fallen into some of the cliché traps you'd expect. We used credit irresponsibly in our 20's resulting in a bankruptcy in 2002. We tried to right the ship but my wife lost her job and we had late payments, a few collections and even a judgment or two over the last several years. We've ignored debts/collections and I'm tired of living with my head in the sand. We've entered into a lease-to-own contract for a home we would very much like to purchase, we have until April 2013 to obtain financing and I know we are going to need to build credit to be able to obtain the loan.

Pete - I guess what I'm saying is, I need help. I've dug myself a hole and I need help getting out of it. I'm willing to put in the effort and make sacrifices as necessary but I need that experience and additional push that a professional can provide. We need advice on how to build credit and do credit repair. We currently lease-to-own our home and outside of what I'd call our day-to-day living expenses, we have roughly $7000.00 in debt. The debt is a 2 personal loans and 1 collection account. We have no credit cards or auto loans at this time. I'm certain we need to do better with our monthly spending. We do eat out vs. grocery shop far too often, but for the most part I think a look at our lifestyle costs (internet, cell phones, etc.) need to be looked at and maybe slimmed down

Where do I start? Can you recommend a legit credit counseling service? You hear about so many of these places causing more harm than good. I just don't know what to do to break the cycle and escape from this terrible financial position. I want to be secure; I want to be able to know I can obtain a mortgage and provide for my family. This is no one's fault but my own, I know this, and I'm ready to change.

I am sorry my email is all over the place. It appears this email has become part confession and part plea for help.

C.E

Do you sense the stress? Its palpable, isn't it? There's so much here to address: technical issues, philosophical issues, and behavioral issues. I'm not saying this guy is screwed. I'm just saying that most financial problems stem from both technical and philosophical shortcomings. We'll address these issues separately. I needed more info to answer the questions so I emailed this person and learned the following: $60,000 household income, he has a 401k at work but no other savings, his current rent payment is $925 per month.

This is a very involved question. I will deal with parts of his question today, and then the credit building stuff tomorrow. Deal?

Technical Issues

C.E. is currently in no position to buy a house. He is not a homeownership candidate. Unfortunately for him, someone might actually loan him money next year. The absolute worst conclusion to his story would be for him to buy the house next April. Based on the income numbers he provided me, C.E.'s take-home pay is about $3,500 per month. That means that his rent payment is 26% of his take-home pay. All other things being equal, 26% of income going towards housing would be acceptable per Pete the Planner's Ideal Household Budget. However, the rest of his financial profile suggests struggle. He's struggling.

A prospective homeowner should have 10% of the value of the home they are purchasing as a down payment AND an emergency fund on top of that. C.E. currently has zero dollars saved, has debts in collections, and owes personal loans. All of these characteristics are the opposite of a prospective homeowner. This doesn't make him stupid or dumb. It just makes him mislead. He is mislead that homeownership will solve his financial problems.

Philosophical Issues

Peer-pressure is a mamma jamma. It can cause some weird decisions. The overriding social philosophy of Americans that homeownership is the best way to go, is quite strange. I kinda get it, I've personally felt that way in the past, but given what's happened in the last five years in the housing market, I can't understand why anyone would be in a hurry to jump back in.

C.E. mentioned two personal loans that also need to be repaid. I can't, under any circumstance, given the information above, recommend that C.E. pursuit homeownership in April 2013. He mentioned that he and his wife have made several bad decisions. I believe that this is primarily due to philosophical issues.

Tomorrow we will continue this conversation by giving credit rebuilding tips and I'll give you my perspective on credit counseling.