What do you think of this plan? (Buying a house)

[StaciMM]

Edited to Update:

Filed Ch 7 9/05, discharge should be 12/05. Would like to be able to buy our house (we've leased it for the past 3 years) around 5/07, which would be 18 months post BK.

Will have:

1 1/2 years on my job, longer in same field
2 years on DH's job

1 car loan @ $295/mo-more than 1 1/2 years old at that point
2 student loan trade lines @ $125/mo total
a few credit accounts to re-establish (perhaps a store card, gas card, and regular card-I've heard variety is good for FICO)

I'd expect scores to be decent though not great, though of course, its way too soon to really have an estimation

House deal is to buy at $149,900, appraised at $175,000 3 years ago and area appreciation is 7-9% annually. We'll have $12,000 or so in lease credit w/ the owner. Our current rent payment is $1200/mo, and we'll be happy to keep our housing expense below that!

[quinnpa]

For a "conforming" loan you might have a little problem just for the fact you filed bankruptcy. But for sub-prime loans and non-conforming you'll be find. Just make sure you score is in the 620's at least before applying and you'll get rate quotes as good as prime loans.

The work history is tricky, most lenders want 2 years minimum at the same job OR the same line of work with not alot of time in between jobs. Sounds like you'd do okay there too.

[concerned]

Staci:

Good luck with the house purchase. I am always reluctant to recommend big purchases, but since you're already living in the house it makes sense that you would want to own it. I know very little about credit after BK, but I think it sounds like you have thought through everything. Our attorney told us that our credit would improve almost immediately after BK, but I'm not sure he was referring to mortgages. I have heard you can expect to buy a home within a couple years from filing. I hope everything works out!

[tinroofrusted]

For a "conforming" loan you might have a little problem just for the fact you filed bankruptcy. But for sub-prime loans and non-conforming you'll be find. Just make sure you score is in the 620's at least before applying and you'll get rate quotes as good as prime loans.

The work history is tricky, most lenders want 2 years minimum at the same job OR the same line of work with not alot of time in between jobs. Sounds like you'd do okay there too.

Actually, I can guarantee 100% that before they can get a conforming loan that they will have to have 2 years out.

We do "day after financing" but to get a conforming loan, you MUST be at least two years post BK discharge.

[sobroke]

What is the big deal between conforming and nonconforming? Tinroofrusted? a little insight please Thanks

[tinroofrusted]

Basically the difference is subprime versus non sub prime. A high credit risk versus a bad credit risk. Simple math!

[LinSC]

Tin,

Wouldn't the lender also take into consideration the on-time lease payments if the person could provide copies or have the current owner supply a letter stating all payments have been made on time?

I'm in a similar situation. We did lease purchase in 2004 and had to renew since we couldn't qualify for mortgage last year. However, now that we've filed BK and been discharged (June '05) our plan is to try and obtain a mortgage in March 2006. Our current lease purchase agreement expires in 2006. Our Equifax FICOs are just under 620 (mine at 619 and my husband's at 610). Hopefully with perservance and diligence (plus paying on time with current credit lines post-BK) our scores will slowly rise slightly above 620 by March. I'm sure we'll still be considered sub-prime. It won't be a complete year since filing, but aren't there programs where we could try to obtain an ARM and then refinance in a couple years once we get past the 2 year timeframe? Or, what about interest-only mortgages? Are they only available to those with stellar credit?

[MTG_BANKER_OH]

You can qualify for a mortgage now with zero down, all you need is a 580 score. The BK is not an issue the BK lenders are all credit score dependent. The plan for people just getting out of BK is to secure a mortgage and then get into an FHA mortgage in 2 years. This is the plan I advide my Bk customers to do. Most conventional loans require 4 years out of BK not just 2 but FHa will allow 2 years out, but you can not be late on anything in that period. You can qualify for an interestly only loan at this time as well which would be a good option for you to keep your payments law for a few years before you refinance and pay the principal down on your own with extra payments. In the first 2 years of a loan you are paying mostly interest anyway. After that 2 year period you can refinance into a 30 year fixed loan.



Nick Kusan
Professional Mortgage Consultant
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Lic.#15112 MB.#3860
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[Lightning]

Interest-only mortgages are rarely recommended. I'm rather surprised a mortgage professional with years of experience would suggest this as an option to someone only two years out of bankruptcy especially since interest rates are going up not down.

Taking out an interest-only mortgage means you're almost 100% sure your income will rise and/or your expenses will drop significantly during the period where you're only paying interest. It's quite a gamble especially for someone who's already had a recent serious financial setback.

[MTG_BANKER_OH]

Not necessrily because after the 2 year period their house will have appreciated, they have gained a tax writeoff, and with most of these interest only mortgages the first is interest only but the second mortgage is fully ammortizing. You have to unerstand some of the rates out of BK at high enough that if they keep everything clean for 2 years the program they can get into will be a fixed rate fully ammortizing and the payment will be the same or lower then it is now even if rates go up to 7%.

In the first 2 years of a loan they will be paying mostly interest anyway. WIth the tax deduction they receive and henceforth a larger tax return. With the larger tax return you can make a large principal payment once a year. Most loans out o BK are only fixed for 2-3 years so therefore you are going to refinance after that period anyway to a better program. There are may benefits to doing this. You are going to gain nothing by renting for another year or two, no tax deduction, no equity and nothing to call your own. Think how many people in florida or califirnia missed out on by puting off buying a home for another year. Thousands of Dollars for doing nothing but making a monthlyl mortgage payment.

[Lightning]

Do you know something about the housing market the rest of us don't? No one can guarantee that the value of a house will increase. Even if the value does increase, how does that help the payments if the interest rates have gone up? Surely you don't recommend cashing out equity. That pretty much defeats the purpose of "home ownership". Have you noticed how many people here "own" their home yet have little to no equity?

The tax deduction for mortgage interest only helps if you're paying a lot of interest, make very little money, and generally have other deductions as well. A mortgage does not guarantee a refund. Even if there is a refund, you're making an awfully huge assumption to say that the person will take all the money and put it toward the mortgage. People generally use their refunds to "pay bills", pay off credit cards used to buy Christmas gifts, or just take a vacation.

Your advice seems pretty self-serving. Don't you make money if you give someone a mortgage even if they go on to default later?