Down payment for house question...

[QuietOne]

thanks to the threads here and some further investigation, we've kind of figured out what we have to do to get a house.

We are renting for one year...plan for a year...utilties on time for year...employment steady...approval from trustee...not more than rental payments or previous mortgage and home equity loan combined.

But one question remains....do "they" ask for an outrageous down payment? And if they do, and if we come up with more of a down payment than the $10,000.00 that was given to us from the sale of our other house, will the Trustee question that and say we have to give it to the plan instead?


Thanks.

[HHM]

Generally not since you are in a chapter 13, but it will depend on where this extra money is coming from (and whether or not you disclosed its existence at the time of filing the chapter, assuming the money was there at the time you filed).

[Lightning]

It's not smart to buy a house while in a Chapter 13 plan. Obviously you can't save much money since you're paying nearly all of your disposable income into the plan, right? The only way to save is to cut your expenses significantly which if you can do means you lied to the trustee about how much you really needed to live on.

You're also going to be taking on a huge financial obligation, and you cannot get out of it with bankruptcy since you just filed. If you're foreclosed on, you'll owe the difference between the loan amount and the sale amount.

You're not going to get the best rate while in bankruptcy. You also won't have any savings in reserve for those "unexpected" new home expenses which I can guarantee you will come up.

Until you have at least 3 months of living expenses in the bank (this does not include your down payment or extra for new-home expenses), you're in no position to own a home.

[StaciMM]

Lightning, the OP is seeking tips on planning ahead. He is not going out and trying to buy a home the day after filing. Isn't planning, and following thru with that plan, a key to financial stability?

[QuietOne]

Thanks, Staci. That's exactly it.

If you read the whole thread, you will see that I mention not having a mortgage payment larger than the rent. We moved and are now paying more in rent, than what we were paying in mortgage + home equity loan at the time we filed.

Ch 13 does not touch your retirement. I can, however, take out a loan against mine and that's what we were going to do if more was needed for a down payment. Using that plus the $10,000 from the other home.

I was just wondering if anyone had any experience in what % is asked down if trying to buy a home in bankruptcy. Also, I can't see why anyone would balk at the idea of us being back where we were when we filed (home owners).

[Lightning]

Are you serious? You just filed bankruptcy, and now you want to borrow more money (loan from 401k) to borrow yet more money (mortgage)?

Very, very, very bad idea. I stand by my post. Save for a 5% down payment. Save 3 months cash for living expenses. Save several hundred for new-home expenses.

If you disagree with my advice, please tell me what would be better.

[HHM]

I tend to agree with Lightening on this one.

Your need to RUN all the numbers

Do you KNOW, or are you making a guess, regarding whether your mortgage payment would be less than you pay in rent right now. Also, since you may be borrowing money for the down payment (which, incidently, is a horrible idea), you need to factor that monthly payment into the overall monthly cost.

Also, are homes appreciating in your area...do you see this as a short-term purchase or do you see yourself living their for 10 years.

I personally think that buying a home in bankrupty is 9 times out of 10 a bad idea because it is the worst possible time to get a loan. I would say that if you ended up having to borrow money for the down payment, DO NOT DO IT, and if prices are fairly stagnant in your area, then DO NOT DO IT. Generally, any loan you can get in a BK is not ideal, so your making a long term bad deal, sure, you maybe able to refinance in the future, but in the long run, it will be less costly to wait and buy when you are "ready".

[QuietOne]

Thanks, but yes, I've already run the numbers, but that's with guessing what the down payment would be. I've run them using several scenarios.

When I say "borrow" the money, it's actually just borrowing my own money from my retirement income. I would just be paying myself back. And the trustee already ok'd our payments into our retirement funds.

And as I said before, we are actually paying MORE right now than we did our mortgage and home equity together, which is what was figured into our plan. We could, in fact, have them refile becuase of our expenses increase. But we've also increased income, so it counteracts each other and that's why we haven't refiled.

Also, where we are the real estate market is falling and three of the houses we thought we might would want if the price fell, have already fallen 15-20,000 each...just since we started looking.

As far as the itnerest amount, we could always refinance as time went along.

No, we are looking at this as the home we would retire in, but yes, we are only looking for a 10-year mortgage.

You have to remember, not everyone had the same deal when going into the bankruptcy. Ours was specifically caused by a personal injury of mine during a time when I didn't have disability and the illnesses of family members (we were helping their spouses and children). We were making a good income and still are and didn't have the same circumstances as others. Our problems were created by medical bills, hospice bills and other incidentals caused specifically from these illnesses/injuries.

One of my very specific needs while looking for a job in this area, was making sure they carried short and long term disability options to prevent the problem again. And we have our financail advisor looking specifically into a fund we could use for paying for anything if either of our mothers became ill. Both of our fathers passed away in 2003.

Perhaps, it might explain things, if I said my husband is quite a bit older than I and doesn't have many more years to work and he feels it is imperative for us to buy while he is still working and making a decent income.

I guess no one has an answer to my question: the % of down payment usually requested. I guess we'll just have to actually start contacting people to find out what the deal is.

But thanks anyway, for the opinions and replies.

[HHM]

If you are Chapter 13, I would suspect that a downpayment of 10% would minimally be required, but it depends on the lender. Ideally, you want to have 20% down so you don't have to pay Purchase Mortgage Insurance (PMI). One way around PMI is to purchase the house with a 1st and 2nd, 80% first mortgage and a 10%-15% second mortgage.

I think your payments will be higher than what you paid before because you will probably be charged more in interest.

Also, stay away from these so called "special" financing programs. They usually result in Negative Amortization (meaning your principal balance actually increases during the loan).

[QuietOne]

Thanks!!