Buying a house after Bankruptcy

[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.

[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.

[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]

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.

[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]

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!

[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?

[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?

[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.

[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.

[highNdry]

A few years back when I was shopping for a mortgage my credit union told me that they don't charge PMI with a 3% or 5% down. May be you can check with your credit union and see if they have something similar.

[angelaohio]

improving your score

do you carry balances on those cards? if so, how high are they compared to your credit limit?

i ask because i also have 2 cards. the months that i paid my balances in full, my score shot up to 626. the month i made minimum payments, it went back down to 585. that's a huge differance just because of my balances!!

i suggest you try the same.

[HRx]

Please continue this conversation in the sticky thread that's in this forum.

[tradewiz50]

If your FICO scores are in the mid 600's you can go stated income or No Doc for a slightly higher rate. However, they require that your bankruptcy be at least 2 years old. So that does put a ding in most peoples plans if they wanted a house within a few months after there bankruptcy.

[valter]

Re: Buying a house after Bankruptcy

hey thanks!!!!