Post BK Home Buying Experience

[CindyLou]

Situation:
Applying for home loan of $280,000 100% financing.

Background:
Chapter 7 BK discharged Feb. 06
Income $130,000/year Employed
Debt: 2 Cars $393/59 mo left $525/32 mo. left
Pers. loan/misc. credit $4200 total

Pre-Approval Offers:
100% financing closing cost in loan;
30 year Fixed 6.125% (1 point buy down at $2800) PMI $130
Total Payment = $1838 + taxes and insurance

30 year Fixed 80/20
80 - 6.25%
20 - 8.5 %
Blended = 6.875%
No PMI
Total Payment = $1750 +taxes and insurance

I was also offered a 5 year ARM with @4.75% with a payment of $1175 and a 30 year ARM @ 5.85% with a payment of $1480 neither of which I am considering. I just can't live life on the edge. I need stability who knows what the market will do in the next 5-10 years!

I was surprised to learn that starting this year PMI is completely tax deductable!

I was happy with the above offer. I was under the impression that I would have to wait until the 2 year mark. I am in Southern California and the housing market has been UNTOUCHABLE until now. So I am ready to strike while the iron is hot. The houses are just sitting unsold. The buiders are trying to give away these brand new houses out in the burbs for their costs! They were building up their inventory when the bubble bursts. The company that offered the loans above was Access Capital out of Arizona.

So if anyone can offer any advice or comments I would appreciate. I am frightened to DEATH! But my rent is currently $1700/month and I am paying so much in income taxes. Getting nto a house would not cost me much more, it would just increase my commute by about 40 miles each way, although I would be able to take the train instead of drive.

Uggghhh Life decisions are so hard.

[BKOnce]

Whatever.. but ARM is a definitely certainly absolutely a.... big No-No!!!..... Avoid hot desert sand, bare bush, dry trees and hot fire moutain .. near the Santa Ana winds (100mph)!...

[HHM]

That sounds like a good deal.

It's not that a person is "untouchable" within 2 years of filing BK...but certain factors are taken into account...income, steady job etc. You do realize that with taxes and insurance, that payment will likely be close, if not over, $2,000 per month.

Granted, those are not the best rates out there...most "market" rates now are below 6%

You probably struck at the right time...end of fiscal year for these companies, so they will do nearly anything to make a sale. But I think the housing market still has more downward momentum...they just released figures the other day showing the largest housing price drop in the last 16 months and the Federal Reserve is about to meet and will likely cut interest rates again.

But, good luck with the new house.

[B12]

These are only pre approval offers. Underwriting is another story.


BTW, pre approval letters given with a contract to purchase are not worth the paper they are written on. If someone wants to buy your house and you are taking it off the market while the buyer's mortgage is underwritten, get a whole lot more than a pre approval letter from a lender!

[B12]

Ok, now the advice from a Broker part and I am NOT in the business of talking people OUT of buying houses. You asked for it! LOL

You just came off a financial merry go round mess. $1700. in CA is not that much rent. That little part after the payment you mentioned...............plus taxes and insurance, plus PMI (tax deductible or not) puts your payment in the 2500. to 2700. range.

Now factor in the cost of purchasing with title insurance, doc stamps, etc. You are looking at another 12-18,000.

With no money down, your total payment should not exceed 25-28% of your monthly income and you are right there at the top.

BTW, I would never buy the rate down for 1% of the loan amount. You are paying that interest upfront and it is not tax deductible. Future cost of money!!!

Fed cut the rate yesterday by 1/2% and looking to cut it again soon by 1/4%.



I don't know what caused your BK in the first place, but you are not giving yourself enough breathing room.

Why not stay renting, sock away cash and purchase in two years when you have a down payment? I see predictions of a market recovery in 2009, but honestly, I don't see the appreciation that quickly, to purchase a house with no money down.

Keep in mind the predictions are for a recovery, not for gross appreciation as we had in past years.

You say you are scared to death. You should be. I am all for and have taken risks all my life so I am not telling you not to take the plunge. But make sure the risk is calculated.

[sickandtired8]

I was thinking the exact same thing! Good advice! S&T

Ok, now the advice from a Broker part and I am NOT in the business of talking people OUT of buying houses. You asked for it! LOL

You just came off a financial merry go round mess. $1700. in CA is not that much rent. That little part after the payment you mentioned...............plus taxes and insurance, plus PMI (tax deductible or not) puts your payment in the 2500. to 2700. range.

Now factor in the cost of purchasing with title insurance, doc stamps, etc. You are looking at another 12-18,000.

With no money down, your total payment should not exceed 25-28% of your monthly income and you are right there at the top.

BTW, I would never buy the rate down for 1% of the loan amount. You are paying that interest upfront and it is not tax deductible. Future cost of money!!!

Fed cut the rate yesterday by 1/2% and looking to cut it again soon by 1/4%.



I don't know what caused your BK in the first place, but you are not giving yourself enough breathing room.

Why not stay renting, sock away cash and purchase in two years when you have a down payment? I see predictions of a market recovery in 2009, but honestly, I don't see the appreciation that quickly, to purchase a house with no money down.

Keep in mind the predictions are for a recovery, not for gross appreciation as we had in past years.

You say you are scared to death. You should be. I am all for and have taken risks all my life so I am not telling you not to take the plunge. But make sure the risk is calculated.

[DisneyGirl]

We're in the process of buying here in Southern California too. I agree that prices have been untouchable and there are so many new homes sitting empty. We're going tomorrow to talk to the mortgage guy and if we like what we hear from him, we'll sign the purchase agreement for our new house.

I'm not sure where in Southern California you are but we were told estimated taxes and insurance combined was around $490/month, plus we have Homeowners Asso. dues of $106/month. Once they added on all that, it did put our payment in the $2400 range. Our loan amount is slightly higher than yours so you'll come in close to that but our total doesn't include PMI.

As for continuing to rent, that depends on your situation. If you are happy where you're at, by all means wait for the prices to drop even more. Our situation is different. We're unhappy with our renting situation and are not interested in moving to another rental home and then moving yet again a year or so later when we buy. We may not get the best deal but we have other motivating factors to consider.

Good luck!!

[B12]

Please make sure you have 3 months reserves, ideally 6 months.

Good luck.

[MTG_BANKER_OH]

Situation:
Applying for home loan of $280,000 100% financing.

Background:
Chapter 7 BK discharged Feb. 06
Income $130,000/year Employed
Debt: 2 Cars $393/59 mo left $525/32 mo. left
Pers. loan/misc. credit $4200 total

Pre-Approval Offers:
100% financing closing cost in loan;
30 year Fixed 6.125% (1 point buy down at $2800) PMI $130
Total Payment = $1838 + taxes and insurance

30 year Fixed 80/20
80 - 6.25%
20 - 8.5 %
Blended = 6.875%
No PMI
Total Payment = $1750 +taxes and insurance

I was also offered a 5 year ARM with @4.75% with a payment of $1175 and a 30 year ARM @ 5.85% with a payment of $1480 neither of which I am considering. I just can't live life on the edge. I need stability who knows what the market will do in the next 5-10 years!

I was surprised to learn that starting this year PMI is completely tax deductable!

I was happy with the above offer. I was under the impression that I would have to wait until the 2 year mark. I am in Southern California and the housing market has been UNTOUCHABLE until now. So I am ready to strike while the iron is hot. The houses are just sitting unsold. The buiders are trying to give away these brand new houses out in the burbs for their costs! They were building up their inventory when the bubble bursts. The company that offered the loans above was Access Capital out of Arizona.

So if anyone can offer any advice or comments I would appreciate. I am frightened to DEATH! But my rent is currently $1700/month and I am paying so much in income taxes. Getting nto a house would not cost me much more, it would just increase my commute by about 40 miles each way, although I would be able to take the train instead of drive.

Uggghhh Life decisions are so hard.

I hate oo be the bearer of bad news but I do not think this is going to get approved. They might be looking at your credit scores and replying back with automated information. I hope it works out for you but I do not know of anywhere you can get those types of rates with a recent BK. When they look further into it I think it will be turned down.

Again I hope I am wrong, but lendingtree.com they just sell your information off to several people and then they will just tell you what you want to hear up front to get the deal.


Please keep us updated.

[MTG_BANKER_OH]

BTW, I would never buy the rate down for 1% of the loan amount. You are paying that interest upfront and it is not tax deductible. Future cost of money!!!

[/QUOTE]


You have some good infomation but the 1% is tax deductible and on a pruchase you can write off the entire amount on your tax return for the year you buy the house in.

I am not always an advocate of buying points if it does not fit into your long term goals because it usually takes 3-4 years to recoup the cost of the points.

[CindyLou]

thanks so much for all of the info! I talked ti the lender. He does have my credit report, knows about the BK and all is well. He says that rules are different and a loan one day ouut of BK in Cali is no problem even close to confoeming rates. I'm also working with a girl at Wells Fargo that says she can get me a little better deal on the rate but still buying one point. I thin the one point might be the thing with the BK.

My predicament is that my income bracket is such that taxes are kicking my butt. if I don't get in a house I am losing aprox. 8000 dollars per year to the IRS! because its getting harder to itemize as my income goes up. My tax advisor said no house no itemizing after 07 which means a tax loss of 10000 or more for 08.
Another thing is we have no central air or heat in our apt which is very hard on my husbands health. We are currently in rent control paying 1700 so to move when our lease is up in feb to a market rent apt would put us in the 2700 range.
Doing that would not allow us to save anything
Our living situation is not great. yes, our apt is in a DREAMY Location by the beach but we could never start a family here. I guess we have to weigh the positives and negatives of the situation and I appreciate everyones advices. Keep it coming because we havenlt decided yet.
But as far as the loan, its funny becuase my best friend owns his own loan brokerage in louisiana and he said no way too, but thing must be different here with loans because I confirmed with Wells Fargo (hard pull and app) and they are saying no problem. Sorry for my typing format I'm on mt handheld today

[CindyLou]

oh and just to clarify that 4400 total pers loan other debt number above is balance not monthly payment. payment is around 150 to pay off in 3 years but min is 65 per mon.

[B12]

Sorry Nick, that "is not" was supposed to be "even though".
I would not pay points even if tax deductible considering the future cost of money.

[MTG_BANKER_OH]

thanks so much for all of the info! I talked ti the lender. He does have my credit report, knows about the BK and all is well. He says that rules are different and a loan one day ouut of BK in Cali is no problem even close to confoeming rates. I'm also working with a girl at Wells Fargo that says she can get me a little better deal on the rate but still buying one point. I thin the one point might be the thing with the BK.

My predicament is that my income bracket is such that taxes are kicking my butt. if I don't get in a house I am losing aprox. 8000 dollars per year to the IRS! because its getting harder to itemize as my income goes up. My tax advisor said no house no itemizing after 07 which means a tax loss of 10000 or more for 08.
Another thing is we have no central air or heat in our apt which is very hard on my husbands health. We are currently in rent control paying 1700 so to move when our lease is up in feb to a market rent apt would put us in the 2700 range.
Doing that would not allow us to save anything
Our living situation is not great. yes, our apt is in a DREAMY Location by the beach but we could never start a family here. I guess we have to weigh the positives and negatives of the situation and I appreciate everyones advices. Keep it coming because we havenlt decided yet.
But as far as the loan, its funny becuase my best friend owns his own loan brokerage in louisiana and he said no way too, but thing must be different here with loans because I confirmed with Wells Fargo (hard pull and app) and they are saying no problem. Sorry for my typing format I'm on mt handheld today

Please let us know, I am very curious how it will work out.

[CindyLou]

I would also like to add, I was just reading a previous post regarding reserves. I would also I have approx. 3 months mortgage in the bank ($6600)in reserve after the closing of my loan in addition I also I have my 401K that has 25K that I do not plan to touch.

Nick, I will update as we go. We are going to Louisiana for the long weekend for my grandmother's 80th birthday, so our serious househunting adventure will not begin until we return. I will update this thread next week.

Keep the advice and opinions coming.....from both sides. I need a lot to think about.

By the way, why would wells fargo tell me I qualifed for up to $495,000 based on my app???? I could NEVER afford that kind of payment!!!!! That boggles my mind! They must be calculating that based on 30% of gross, right? I know my debt to income ratio is low, but I still have regular bills. How can people afford that? But why don't they consider what you have to pay in taxes when they look at your income? I have calculated my 30% from my net income which puts me at the $285,000 range. We have actually come across some new homes in the $250,000 range, so we are going to explore a little lower ...that would be great.