Get the big (ugly??) loan, or just renew the lease for another year?

[spongenotbob]

Hi all,

So it's almost lease renewal time for me, and I am pondering what to do... my rent is really a "steal" relative to housing purchase costs around here, but alas of course the longer I stay out of the market, the harder it is to buy anything around here...

Anyway here's my sitation:

BK7 filed 10/2005
BK7 discharged 3/2006

FICO scores... 660/677/697 (I question that last one, so I am using 660 for quotes to be conservative)

Ideal: 80/20 loan, 30yr fixed, 0 or close to 0 down. Fee-simple Townhouse.

Am I dreaming? What sort of interest rates might I be looking at?

Thanks in advance!
spongenotbob

[HHM]

First, what sort of purchase price are we talking about? How much do you think your monthly payment would increase. Look at it this way, if your monthly payment on the mortgages would be equal to or greater than 30% of your gross income, you cannot afford the house anyway.

I think your dreaming about the 0 down and 0 close given that even in the best case scenario, your credit is not ideal right now. (unless these are new townhouse and the developer is giving 0 down and 0 close as an incentive, however, that means you have to go with the developer's lender who may not work with you because of your credit). It's pretty difficult for a person with sub-prime credit to get a package of loans that is equal to 100% LTV, and almost impossible to do it with 0 at closing. Generally speaking, regardless of your credit score, you will be considered a 2nd chance (or sub-prime) borrower for mortgage purposes for two years from the date of discharge of your BK.

The rule of thumb I use regarding home purchase, if you can't put at least 5% down (preferably 10%), you are not really in a position to afford a home.

Also too, do you make enough money that you could actually make use of the mortgage interest tax deduction.

I wouldn't worry too much about the "market" for homes, your main concern is getting yourself in a position to "afford" a home and to make a good deal when you buy one. Don't make a bad long term deal just to get a house that you can barely afford. Wait, save some money, and make a good deal when you are in a position to comfortably afford a home.

However, if you are curious about what you can get, visit a Mortgage Broker (because they have access to numerous loan programs)...try to get a recommendation from friends or family, a Broker only needs to pull your credit once.

[spongenotbob]

First, what sort of purchase price are we talking about? How much do you think your monthly payment would increase. Look at it this way, if your monthly payment on the mortgages would be equal to or greater than 30% of your gross income, you cannot afford the house anyway.

I think your dreaming about the 0 down and 0 close given that even in the best case scenario, your credit is not ideal right now. (unless these are new townhouse and the developer is giving 0 down and 0 close as an incentive, however, that means you have to go with the developer's lender who may not work with you because of your credit). It's pretty difficult for a person with sub-prime credit to get a package of loans that is equal to 100% LTV, and almost impossible to do it with 0 at closing. Generally speaking, regardless of your credit score, you will be considered a 2nd chance (or sub-prime) borrower for mortgage purposes for two years from the date of discharge of your BK.

The rule of thumb I use regarding home purchase, if you can't put at least 5% down (preferably 10%), you are not really in a position to afford a home.

Also too, do you make enough money that you could actually make use of the mortgage interest tax deduction.

I wouldn't worry too much about the "market" for homes, your main concern is getting yourself in a position to "afford" a home and to make a good deal when you buy one. Don't make a bad long term deal just to get a house that you can barely afford. Wait, save some money, and make a good deal when you are in a position to comfortably afford a home.

However, if you are curious about what you can get, visit a Mortgage Broker (because they have access to numerous loan programs)...try to get a recommendation from friends or family, a Broker only needs to pull your credit once.

Hi HHM,

Thank you for the thoughtful reply. Yep, it would be a stretch indeed. Between the PITI+HOA fees, it would be probably ~32% of gross, which definitely makes me cringe. But -- we aren't done looking; perhaps we can find something cheaper... maybe...

(Note: HOA fees are $350, a large chunk o' monthly cash)

It's just frustrating to watch the area I live in become less and less affordable... it seems the longer I wait, the less chance there is...

But, if I'm definitely stuck in subprime territory until discharge date + 24 mos (no matter what my FICO) then I should probably sit and wait. I could beg/borrow a downpayment from family but I think I'd wait for a while and try to save it myself before doing that.

Think there's any chance in the world I could get a prime loan at this stage?

Thanks again,
spongenotbob

[HHM]

But, if I'm definitely stuck in sub-prime territory until discharge date + 24 mos (no matter what my FICO) then I should probably sit and wait. I could beg/borrow a down payment from family but I think I'd wait for a while and try to save it myself before doing that.

Think there's any chance in the world I could get a prime loan at this stage?

If you are one year out from discharge and your average scores are above 680, you could give it a try and see what kind of deals you can make. But the general rule in the mortgage arena is that any person that is less than 24 months out from BK will be considered sub-prime regardless of their score.

Note, some lenders may look at the date you "filed" instead of the date of "discharge".

Those HOA fees are killer, you should really shop around. Where I live, you only see HOA fees like that in the richest of neighborhoods (i.e. $1+million homes).

[spongenotbob]

Those HOA fees are killer, you should really shop around. Where I live, you only see HOA fees like that in the richest of neighborhoods (i.e. $1+million homes).

Yep - it's crazy. But it does include exterior maintenance, insurance on the structure of the house, trash, water, sewer, cable, and one or two other minor things. Still, it's a lot of dough. The house is nowhere near $1M... more like 1/4 of that...

Note, some lenders may look at the date you "filed" instead of the date of "discharge".

Hmm... interesting... do you have any sense of how common this is (use of filing date versus discharge date)?

Thanks again!
spongenotbob

[CindyLou]

I agree with previous poster that you should wait just a little longer. I committed that I would wait a minimum of 2 years out of BK to even start looking for a house. Everyone has a different situation, but the last thing I want is to buy a house then need a new a/c or roof in 6 months and not be able to pay out of my pocket or even get a sear or home depot card to take care of it. I'm not sure where you are, but in many areas of the country the housing market is becoming more of a buyers market anyway so waiting may not be a bad thing. One more year will pass in a flash!!!!! And as far as the 30% rule, I couldn't make it if my housing was even close to that! I don't want to be "house poor" and not be able to afford vacations and handle emergencies without getting back into debt. Just my 2 cents, but hopefully our opinions help....

[spongenotbob]

Just my 2 cents, but hopefully our opinions help....

Absolutely, very much so. Thanks to everyone who responded - I think we'll probably hang out here (rent) for another ... 16 months or so... who knows, maybe if I'm lucky the housing market will hit bottom right about then =)

Take care,
spongenotbob

[SinkingFast]

Just to CYA yourself against getting stuck in a lease,........... Maybe negotiate a shorter term Lease at the onset with Month to Month until you decide to leave.

Instead of a traditional 1 year Lease, see if you can get the Landlord to give you a 6 month Lease with a Month to Month option on the end. That way, you have short term stability while you consider your options. Then, if the right opportunity comes along, you're not tied to a lease 8 months down the road.

Just a thought to help you keep your options open.

[HHM]

Yep - it's crazy. But it does include exterior maintenance, insurance on the structure of the house, trash, water, sewer, cable, and one or two other minor things.

For what you get, the $350 is not that bad. Still though, that amount of an HOA fee really increases the cost of ownership.