when to stop paying ride-thru mortgage?

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Please share experience, advice, suggestions. Our ch 7 was discharged in Aug '09. We're wanting to be moved in a 1-1.5 years. The house was IIB and we are current on payments. At the time of our BK, the atty advised us to continue to pay until we secured a mortgage for a different home. That made sense to me at the time but now I'm wondering what a lender will say when they realize I'm trying to get a mortgage only to default on my current one (even though it's already been IIB)? The atty was thinking I'd need to be able to prove consistent timely rent/mortgage payments. I'm wondering if it's better to stop paying my current mortgage now so that I have thousands more to invest in a different house or better to continue paying while saving less but showing my ability to pay? I feel caught in a catch 22.

[siamese]

Let me know what you find out. We are in an almost identical spot just about six months behind you on our discharge date.

As more and more people enter the ride-thru ranks, my guess is that the powers-that-be will change the rules of the game again and make people wait even longer to rebuy.

[AngelinaCatHub]

If you stop now, it could take only weeks to get you out. I would not chance it until you find the location and right priced home. Perhaps investigate in a 'rent to own' type of thing called a "Contract for Deed". This worked out for us long, long ago when we were mere kids finding our first home. We paid it up and got a Warranted Deed.

Suggestion, you are in a very rough area. Consider FL or TX or if you are a cold weather person AK. Those states have no state income taxes and FL and TX are homestead states. Not that you will need that in your new start.

It is cheaper to live in a warmer climate. I lived in Chi also known as hell for 8 years. I'd prefer hell as it is warmer. LOL. 'Hub

[Freddy03]

Let me know what you find out. We are in an almost identical spot just about six months behind you on our discharge date.

As more and more people enter the ride-thru ranks, my guess is that the powers-that-be will change the rules of the game again and make people wait even longer to rebuy.

I'm curious about this as well.

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Thanks for the responses. I'm still looking for your opinions/advice here but this is what I got earlier today: I took a chance and called a realtor for advice today. She advised me to continue paying until I secure a mortgage just as the atty said. She also suggests I go FHA and make sure I get a company that munually underwrites rather than auto underwrites. According to her, a manual underwritter will have a chance to consider our circumstances where that's not the case with auto underwriting. She says it will look better to an underwriter if I continue to pay rather than take advantage of the time I could not pay but live rent free. And, as AngelinaCatHub mentioned above, she said not paying now doesn't mean I'll get the full year it's been taking for foreclosures to go through. Apparently, having the house IIB could make it easy for the mortgage company to expedite our eviction. So, in her opinion, the best way is to pay and stay until we secure financing.

AngelinaCatHub.....thanks for the suggestions. We've talked about other ways to buy but I wasn't sure of the terms used so I could really research the options. The only one I could think of was "land contract". Looking into other options is on my *to do* list.

[AngelinaCatHub]

Yes land contract of also a term for what I am talking of. The nice thing about Contract for Deed is, you can leave it and not get sued. It is a mutual agreement that if you leave all equity falls back to the original owner and he sells it again. It is similar to owner financing, but without an eviction situation. Google your state for such things as your different ways to buy. It differs at times from state to state. 'Hub

[screentest]

Just to add a question here as we are also probably going to be in this situation.

If you "stay and pay" and then after the 2 year post BK discharge want to attempt to get a new mortgage with FHA, don't you have to qualify for both loans (Stay and pay and new mortgage) on DTI?

We don't know whether to try for mod and "stay and pay" for a few years or just get it over with and start the 3 year repurchase clock(after foreclosure) with FHA. I would hate to stay here and then after several years find out we still don't qualify until our current, discharged home is foreclosed and then wait another 3 years. I think many stay and payers are finding this out the hard way right now.

Am I correct or does anyone know the truth on this? I have contacted several FHA lenders and like BK attorneys they all just scratch there heads, say they will get back with me and I never hear from them again.

Thanks
ST

[debee]

Google "FHA buy and bail" and you will find the 2008 underwriting guidelines. You have to be able to carry both houses, or have 25% equity in the one you're walking away from in order to 'rent' it. Also, you need a year long lease contract in place. The only exception is for a relocation. If you have that, you can include the rental income.

We've had two conventional mortgages with rentals left behind (including one in '09) and both times we were only able to include 75% of the rent as income. We had to have six month reserves as well, but the loans were conventional. Not sure what kind of reserves are needed for FHA.

Also, there is new FHA legislation designed to stop strategic defaults even more. It passed the house last summer.

[NoMoreCards]

I was considering how to do the same thing, and this is what I have done. I rebuilt my credit as best as I could, and drastically cut expenses and saved every penny I could. I opened a credit card account at NFCU and did a 11K cash advance. Yes, I know the interest is high...but hear me out a minute first. :-) Then I borrowed 7K from family, saved up 10K, and then took a 401 K withdrawal to purchase a house for cash. The house I bought was foreclosed on, and needs minor repairs which I can do myself, and is very unlikely to lose more value. It took some searching to find the right house, but I finally found it.

So although I now have "credit card debt" that I never wanted, and owe family, I also own a house that has no house payment. So the house I am "stragically defaulting on will save me 1500 a month, which I can easily pay off the debt to purchase the house. The montlhy payments on the new debt is 720 and the debt will be easily paid off in 3 years. May 1st is the first house payment that was not made on the old home, I close on the new house in 2 weeks. If something falls through, which it shouldnt...I will make that 1500 house payment, and keep up my search.

The idea of living without a house payment, makes me giddy. Although I am not there yet...I will be!!

Anyhow, I know some won't agree with what I've done however it works for me.

[screentest]

Google "FHA buy and bail" and you will find the 2008 underwriting guidelines. You have to be able to carry both houses, or have 25% equity in the one you're walking away from in order to 'rent' it. Also, you need a year long lease contract in place. The only exception is for a relocation. If you have that, you can include the rental income.

We've had two conventional mortgages with rentals left behind (including one in '09) and both times we were only able to include 75% of the rent as income. We had to have six month reserves as well, but the loans were conventional. Not sure what kind of reserves are needed for FHA.

Also, there is new FHA legislation designed to stop strategic defaults even more. It passed the house last summer.

Thank You for your response Debee.

I have searched high and low for a definitive answer on this and this helps. I think many people in a stay and pay situation are going to be shocked after waiting 3 to 5 years or more after their credit has rebounded thinking they will get another mortgage only to find out they don't qualify until they have resolved the issues with their current mortgage, even though they are discharged. I know more legislation will probably address this issue more definitively in the near future as well.

This should help many people deciding on trying for a mod after chapter 7. If they are underwater as I am, it is just a waste of time unless they plan on living in their current residence forever....I don't. I am headed down the walk-away path so I can get the 36 month clock started.

Thanks again.
ST

[debee]

I think you're doing the best thing for your situation, ST. It's not ideal, but it can be a good adventure if you're willing to see it that way.

[siamese]

Look into a USDA mortgage, sweetpea did something very similar and was successful with a Quit Claim Deed. Worse case scenario, bypass FHA completely with a private hard-money loan..people will find a way around the restrictive crap designed to keep people in their overpriced homes!

Also, not sure why you need to qualify for both homes in a "buy and bail" scenario. If you plan to bail on the old home, as the "buy and bail" name implies, why do you need the income to support the second home when you plan on not paying them as soon as you close on the new home? Again, it seems like the banks are now in the punitive/prison warden business instead of in the financial/making money business.

[debee]

Also, not sure why you need to qualify for both homes in a "buy and bail" scenario. If you plan to bail on the old home, as the "buy and bail" name implies, why do you need the income to support the second home when you plan on not paying them as soon as you close on the new home?

Because buy and bail is mortgage fraud. If you tell the lender you plan to walk away from your current house & need a new one before you do it, noone will lend you the money. Except maybe Vinny down at the club but then it's going to cost you 135% and your kneecaps.

Also, Sweetpea hasn't gotten her USDA loan .... yet. They jury is still out that one.

[siamese]

So how many corporate entities committed "buy and bail" hmm? How many companies walked away from their corporate
mortgages? Did they commit mortgage fraud? Nope..its a business decision..period.

You are assuming everyone that buys another property is renting out the previous property. BIG ASSUMPTION! If you
qualify for both mortgages, you can buy the second home. There is no mandatory time limit, that I know of, that requires
the buyer to continue paying the initial mortgage after the new mortgage clears title. KEEP POLITICS OUT OF THE DISCUSSION FOLKS!

A lot of the people posting here are looking for advice on how to make the best out of their BK filing. Private money loans, btw, require about 20% down and are a couple interest points higher than your best market rate. Hardly the kneecap scare tactics you are spouting off.

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Because buy and bail is mortgage fraud. If you tell the lender you plan to walk away from your current house & need a new one before you do it, noone will lend you the money.

I'm not so sure it's fraud if the house was IIB? The *buy and bail* stuff I found is all in regards to home owners who have not BK'd the first home. Any reliable sources for this info?