Buying a house after Bankruptcy

[debtjumper]

900k for a 2000sq foot home?

Hell in Michigan you can get 10 acres of land an a 5yr old house; even near Metro Detroit for that price. I'm targeting vacant parcels of land or an old house on some land. IMO i have my finances very under control. I would like to get a place to stay at for a long long time.

What blows my mind here is that people spend 600-900k for a very nice house on a postage stamp size lot where if they were to live 10 minutes further away they could get the same new huge house on several acres. Maybe I have a biased opinion because I grew up around farmland.

[mixxalot]

California housing bubble and prices

Well I sure wish real estate prices would drop in San Diego where I live. The market is way overpriced even for a tiny 2 bedroom condo costs about 300-400k. SFR homes that are standard 3-4 bedroom with 2000 square feet are running like 700-900k. However, most folks are overextended who buy here and I predict a drop in 3-6 years when I will be ready to buy. Folks are taking out risky ARM and payment type loans and using home equity like an ATM machine to buy luxury cars like Mercedes, expensive SUVs and BMWs.

Not only will more foreclosures occur but drop in prices (I hope) otherwise will need to rent for next 5 years. But its okay, I can save and budget and my car is paid off so expenses are food, rent, phone, gas and insurance and my one student loan (14k) that should be paid off by the end of 2008. I want the student loan paid before I decide to buy a place in 2011 or 2012. I may decide at the point to find a cheaper state to live or continue to wait out housing market in San Diego. It seems one has to make 200k a year to buy a decent home in southern California and average salary is only 50k here for normal income family.

[Grace]

One shouldn't spend more than 25% of gross salary on housing. With a gross income of $44k, 25% per month is about $917. Taking on a mortgage of $1360 with an interest-only mortgage means you'll be paying about 37% of your gross salary for housing (that's before taxes).

Where will you come up with an additional $300 to put toward principle? That puts your housing expense at 45% of your gross income. Look at your paycheck. Can you live on less than half of it without the mortgage payment?

Do you have a statement in writing from your employer stating the salary increase to $55k a year? Do you live in an at-will employment state? If so, you can be terminated for no reason at all. Can you afford the house then until you find another job? If not, you'll be stuck with a deficiency balance since you can't file BK again. If you don't pay the extra toward principle, are you sure you can secure a new mortgage at a lower rate with 0% equity?

[debtjumper]

Interesting how this post came back alive...

(In Michigan, note that my only expenses are car insurance, cellphone bill, and food)

I'm looking at a house in the $169k range. My ch.7 bk has been discharged since May 31st and my scores are now showing 590-610. In the next few days I need to make a decision on this property I like. They mortgage brokers are saying the best they can do is that I pay 5% down and do an interest only loan at 9.6% for two years and then do a conventional. My jaw nearly shattered when it hit the floor.

Yeah, I can afford the $1360/mo "interest only" payment but should I do this? Yea that will be $16,320 that I can write off my taxes (save approx $3800+ in taxes or like $320/mo). Income base upon $44k/yr (my income will probably crest at $55k mid 2007). This knocks me down into a lower tax bracket too.

With that said, am I actually getting a decent deal for the first 2yrs considering my bk history? Factoring in the tax savings the payment will be like $1040/mo. No PMI is needed. If I can pay an additional $300/mo towards principal, would I be coming out pretty good at the end of the 2yrs when I go to get a conventional loan?

[mixxalot]

Living within means the key and emergency funds

Thanks, I also advise having a simple budget even if you happen to make a good salary and a rainy day fund for emergencies. Case in point, this year I was on a project for the Navy which paid me $85/hour as a contractor. However, a month into the project the client got cold feet and kicked me off the contract. I saved up most of the earnings and this kept me going until the new job back in San Diego. One thing that I learned from my post BK credit class was to budget and track spending and find ways to cut expenses. It costs me 10 cents to make a latte/espresso with my home cappacino machine that cost me 20 bucks at Target versus a $4 latte at Starbucks and only 99 cents to make a power 4 egg and cheese breakfast omelet with my omelet pan instead of wasting $8-10 in a breakfast cafe. Amazing how it adds up! That and since I do not drink or smoke that saves a lot :-)

Also see a lot of folks who spend money on junk instead of savings and from many friends and colleagues from China, Japan and India- these cultures tend to save and are frugal more so than most Americans. Just a thought and better to drive a car for 10-20 years and live simple to have peace of mind financially. Nowadays myself and family do not buy gifts- we make crafts for each other and save money and have a good holiday dinner instead of expensive gifts.

Happy Holidays!

[lrprn]

I plan to save up 100k for a down payment in next 3-5 years and work on building a stable job the next few years. I have a couple secured cards that I obtained after my Ch7 discharge this year and my car loan is paid off so that should help my credit score when it comes to take out a loan for my first home. Learn to budget save and invest. I rarely use credit except for small purchase on occasion because if you max out cards that is bad for your FICO score. I cook most of my meals and eat out only at cheap lunch specials for Asian restaurants and do not waste money anymore.

What a great post-bk example you are setting, mixxalot! You've learned the hard lesson of bankruptcy very well....that borrowing more and more money doesn't fix not having enough money. You changed your lifestyle and ways of thinking about money which is the best way back to strong financial health after filing.

You will succeed beyond your wildest dreams now, and all of us can learn from your excellent example - thanks for sharing!

[mixxalot]

Wait for market correction on real estate

I agree- many good sites have research such as piggington.com and socalbubble. Most likely at least 2-5 years for market correction to complete for homes in southern California. The interest only loans (ARMS, etc.) and no money down EZ credit will boomerang on folks who really cannot afford these million dollar homes in San Diego.

I plan to save up 100k for a down payment in next 3-5 years and work on building a stable job the next few years. I have a couple secured cards that I obtained after my Ch7 discharge this year and my car loan is paid off so that should help my credit score when it comes to take out a loan for my first home. Learn to budget save and invest. I rarely use credit except for small purchase on occasion because if you max out cards that is bad for your FICO score. I cook most of my meals and eat out only at cheap lunch specials for Asian restaurants and do not waste money anymore.

[onlineuse]

I still think this market has a LONG way to go down. I can't be the only one in foreclosure that hasn't been reported...my prediction is we see a big increase in foreclosures this spring as the mortgage companies finally report all the ones they've been holding off the books.

Values here in my area dropped 27% Year over Year according to the front page of this weekends paper. That's catastrophic. Foreclosures were up a mere 97%.

[mixxalot]

Best bet- save for larger down payment and wait

At least that is what I am doing. I received my discharge in March 2006 and will wait a couple more years before I buy a place. That to save for larger down payment as homes are way overpriced in California and to season my credit and FICO scores for better mortgage. Besides California real estate is a bubble and prices are starting to drop this year. So to wait a few years, save up a good down payment and build credit back to at least a 720+ FICO will be best strategy. That and to have a stable job for at least 2 years to please the lenders and banks. I had a lot of unexpected things happen to me this past year that taught me a lesson on why savings are important like having to spend 3k in auto repairs on my 10 year old car and a new computer for business as well as losing a client and income and the EDD screwing up my unemployment checks.

[debtjumper]

Thats my new "thing" now --- to buy some land. I grew up in the pseudo-country (no traffic light in the entire township) just outside of Metro Detroit. I really have no interest of ever living in a subdivision and obviously not in a city. Land is going for about $15k to $45k an acre with usually a minimum of 2.5 per house by ordinance. With that in mind, I can purchase the property and build my own house at my own pace.

I currently rent (live with a buddy) and pay $400/mo to share a nice condo loaded with all of the latest electronics and new furniture. That covers the utilities and even the $130/mo cable tv/internet bill.

I'm specifically looking at one of two 5 acre lots on a main road that are priced in the $100k range. The $700/mo mortgage payment (105k @8.5% w/20% down) isn't that bad and I could still live in the condo while I build my house.

Hell, after a couple months I could do a excavation and a basement for under $6000 and pay straight cash for that. Then do the floor, etc... all paying for it up front with cash.

[SinkingFast]

According to whom? Has the Fed made an announcement?

Actually, rates have remained stable:

http://www.money-rates.com/fed.htm

Maybe you missed it. The poster is in Michigan. What happens in New England does not automatically apply to what happens in Michigan. Some markets in the US are actually increasing. Pick up a copy of the Wall Street Journal or real a couple of sites online that talk about personal finance.

True! What happens in one part of the country does not necessarily reflect events in another part of the country. But,........ All you have to do is a little research yourself, maybe listen to the news, you'd know the housing market in Michigan has tanked.

Here's one recent article about the Foreclore rates in the Detroit Metro area:

http://detnews.com/apps/pbcs.dll/art...DATE/611100326

And from another site/article:

Michigan reported 7,846 properties entering some stage of foreclosure in September -- a 14 percent increase from the previous month and nearly three times the number reported in September 2005 -- boosting the state's foreclosure rate to third highest among all the states, according to RealtyTrac. With one new foreclosure filing for every 538 households, Michigan's foreclosure rate replaced Florida's foreclosure rate among the nation's top three.

http://www.centralvalleybusinesstime...s/001/?ID=3251



In our case, Online, where we live, it actually costs more to rent than to own. Just the reverse of your market.

We could buy our Condo for much less per month than we pay in rent. But, if all goes well with our BK, we are not thrilled at the prospect of buying a home here. Our town has one of THE highest foreclosure rates of the entire country with declining existing home values.

Homeowners selling today have to ask less than they paid 3-4 years ago. New construction going up like crazy. It's not local builders driving the insanity. It's 3-4 outa State Mega Construction firms that have swooped in, buying up farm land right and left, and building like crazy. And the local City/County Councils aren't planning the growth. They just hand out building permits like they are candy.

[onlineuse]

lp thank you kindly for posting that information.

Grace, I really don't understand your anger issues but I will answer the questions you posed.

First, rates overall have been dropping. Last week they are at a six month low. Core inflation pressures have eased and there is virtually no chance of the fed raising rates. In fact most are saying, and logic dictates rate drops in 2007. Most of the time when the fed rate is lowered, our mortgage rates also are stable or drop. Forgetting the overall trend, if this person just got out of bankruptcy 10-12 months ago all other things being equal he or she will qualify for a lower rate as time passes. If rates are dropping and credit scores improving is it not fair to say the APR on a mortgage will drop?


Second, the housing market is soft. It's just a matter of how soft in each region but I'd argue it's much worse than the numbers indicate nationwide. Sure, in MI where the average home is $175k the pure dollar shock drop will not be as high as MA where the average is almost 300k, but it's still a large percentage drop. We are also heading into the slow season, which is why proclamations that the bottom has been reached are foolish (on tv etc). Even if things are near the bottom, it won't turn until the next buying season beginning in March. That's 4 more months, and 5 more reporting periods of hurting first. It's a buyers market today, it will be more of a buyers market in 6 months everywhere.

Rents are often a function of prevailing costs of ownership. If my comparison of a $2500 mortgage payment versus $1800 in rent does not work in MI, perhaps $1500 versus $1000 would. Either way you pay significantly less to rent and with homes depreciating and rates dropping there is absolutely no reason to rush into buying a home. In fact financially it's probably a terrible thing to do for someone out of bankruptcy.

[lrprn]

Maybe you missed it. The poster is in Michigan. What happens in New England does not automatically apply to what happens in Michigan. Some markets in the US are actually increasing. Pick up a copy of the Wall Street Journal or real a couple of sites online that talk about personal finance.

Here are several reliable online references saying the the Michigan home market is not doing well and home values are decreasing:

http://www.usatoday.com/money/economy/housing/2006-08-23-july-sales_x.htm

http://www.detnews.com/apps/pbcs.dll...IZ03/601170367 (this one is from almost a year ago)

Grace, in the future please take your own advice and do some research yourself before posting. Took me about 10 seconds to find these.

[Grace]

... but APRs are dropping. They are going to continue to drop over the next 1 or 2 quarters at a minimum.

According to whom? Has the Fed made an announcement?

Second, home values are diving. Here in New England they've depreciated by 20-30%. I don't care what the "news" reports, actual homes that sold for 600k last year can't get 480k right now. Zillow and other sites show 10k drops per period. Why buy now?

Maybe you missed it. The poster is in Michigan. What happens in New England does not automatically apply to what happens in Michigan. Some markets in the US are actually increasing. Pick up a copy of the Wall Street Journal or real a couple of sites online that talk about personal finance.

[onlineuse]

I wouldn't buy a home now if I could. Not only are we/you paying a higher APR due to bankruptcy, but APRs are dropping. They are going to continue to drop over the next 1 or 2 quarters at a minimum. Second, home values are diving. Here in New England they've depreciated by 20-30%. I don't care what the "news" reports, actual homes that sold for 600k last year can't get 480k right now. Zillow and other sites show 10k drops per period. Why buy now?

Up here tons are unloading there 2nd homes to the rental market. Just last week I saw one home in the paper, 4k square feet, 3 fireplaces, 5 bedrooms, 3.5 baths for 1900. It was gone in a flash, but you can't get a 200k home up here for that type of mortgage payment, nevermind after bankruptcy. Right now there are upper tier homes leasing for 1-3 years from private owners for 1300-1800 a month, many with lots of perks. These were peoples dream homes that they cannot afford. Take the $1000 a month you save on the mortgage, the $500 a month in home depreciation over the winter, and put it towards a nice 1 or 2 year lease.

Homeowners are desperate right now for revenue. If you see a home you like that's been on the market inquire about renting it. We've asked on 4, all 4 were open to the idea. People need the $$$.