How's your non-conforming loan after BK? Having fun?

[moneytree]

We've been renting for going on 2 yrs. too long. We, like most people, can be approved for a non-conforming mortgage soon after discharge. Do we buy a $270K house and work our butts off to pay $2400/mo. total in an 80/20 loan (only interest being paid) for 2 yrs and then refinance? Or do we continue to rent for 2 yrs. (our rental home is beautiful & perfect for us, but on the market would sell for $320's, over our head)

I hate the thought of paying the landlord another 1-2 yrs. By paying a mortgage we'd be getting a lot of that back at the end of the year. With renting (in this State) you cannot claim rental expenses..it's a complete loss.

What would you do? Or what have you done? Another issue for us is if we buy we can get our children into the school that we want. Our son starts Kindergarten in Fall 07. We also sort of dislike our neighborhood now.

Would you run right out and get a non-conforming loan? I've heard about 'Good Faith' estimates from our atty and paying only 1 pt/1%...and if they have 3% on the loan, ask what that is for, etc etc. Any guidance here on getting a decent loan with as low as possible monthly payments!?

thanks!
-moneytree

[BassBoy]

No way would I do an 80/20 loan........and it's interest ONLY?!?!?!?!?! Sorry to say it this way, but that's plain nuts! I think the lender would be preying on you......knowing you can not file BK for another X amount of years. Unless you can at least put down 10% and/or go with a conventioanl loan (and I mean form a normal bank; i.e. National City, Fifth Third, Key Bank and those of the like), then do not even consider it. There are way too many lenders out there that prey on those with poor credit and/or BK's. Their only interests are to take whatever money you can pay them for now, take your house when you default, and still be able to collect the deficency balance. Besides, after the 2 year period, do you know what your payment will be exactly? Most likely not and the payment will be outrageous. And who's to say you'll be able to refinance in 2 years. What if you're financial status changes? What if the terms are no better?

Maybe I'm just bitter about the predetory lenders out there and I believe their only intentions are to stick it to you where the sun don't shine.

[SinkingFast]

Check out the school you want your children to attend. See what the policy regarding kids from outside the District is. Many public schools allow parents to pay tuition for out of District students to attend the school.

Sometimes out of District Tuition is relatively inexpensive. Sometimes it's as much as private school would be.

If the tuition is something you can afford, that's a way for you to get your child into the school you want without living in the District. Be aware, tho, most often, parents with kids coming from outside the District must provide the student's transportation.

Re the Home Loan,........... I wouldn't do an Interest Only loan. Interest Only is pretty much the same as renting without the benefits of renting. You're responsible for repairs, upkeep, taxes, and insurance. Interest only is money down the drain to the Lender.

Also, it's too easy to pay the interest only and build no equity at all. There's no guarantee that your housing values will increase significantly in such a short period of time.

[BK'd-Betty]

With all due respect - if you have to do an 80/20 Interest only - you can't afford the house.

Please don't get sucked into Predatory Lending - it could be the worst financial decision you've ever made.

[HHM]

With all due respect - if you have to do an 80/20 Interest only - you can't afford the house.

Please don't get sucked into Predatory Lending - it could be the worst financial decision you've ever made.

I second that...

interest only on any mortgage is a pretty dumb financial move if it is for a house you are going to live in. (interest only loans only make sense for real estate investors in appreciating markets or for obvious fixer-uppers that you can buy at 30%+ under market value).

Regarding the "get bad loan now, refi later idea", that almost always costs you more in the long run. First of all, you are apparently going to be filing BK (based on your other posts), so you are going to be a sub-prime borrower for at least 2 years from discharge. Plus, with interest only, you are pretty much throwing money away (just like with renting) because you are not building equity. Sure there is a mortgage tax deduction but that assumes you itemize in the first place. Also, you are taking a pretty big chance that your credit will be good enough in a few years to refi at a much better deal. Refi's of mortgage loans generally only make sense if you have been in your existing mortgage for 5 years and can reduce your interest rate by at least 2%, also, that the original loan was not 100% LTV. If you do an interest only loan with an 80/20, and you refi at anytime, you will lose money.

[BK'd-Betty]

The housing market will continue to decline well into 2009 - our property dropped in value almost 20% between Aug 2005 & Aug 2006 in a market that had previously been "white hot".

If you owe 100% and are paying interest only in a declining market - the end result could be financially devastating. If you've already filed and been discharged - you will have no safety net - other than a 100% Ch 13 payback, or selling the home at a loss and having to come up with the difference.

Also, keep in mind, those kind of Lenders jack up the appraisal so they can loan you more money - so it's highly likely at 100% LTV - with a predatory lender, you'll already be upside down the day you close.

If you are able to refinance in 2 years with a conventional loan, the appaisal will likely come back way less than the first one and they won't loan you what you need to re-fi.

YMMV - good luck to you!

[periwinkle13]

Another thing to consider: To claim your tax deduction, you have to itemize in the first place. Second, how much interest are you paying to a bank so that you can claim the tax deduction, along with being on the hook for all the maintenance?

80/20 interest only - NO WAY!! I had an interest only in a declining market and guess what? Home went in to foreclosure because we couldn't sell it to even break even, but we were able to file ch. 7. If you do this after you get discharged, you are stuck for many years with NO ability to file a liquidation bk. Like a previous poster said, you might get a 100% payback ch. 13, but WHY??

Time to recover and save for somewhat of a downpayment. Your mortgage payment should be 25% of your take home pay or less - otherwise you can't afford it. If 2400 is 25% of your pay, I don't think you would qualifying for ch. 7 in the first place. Don't be a victim to predatory lending. Take some time to do a search on loan fraud - inflated appraisals are rampant and evil. Why would a lender inflate an appraisal and over loan on the property? Because they can and after your bk, you can't do a thing about it. You default and they get the house, plus all your money prior to that, PLUS the amount of default once they sell it as auction.

[emoney]

Paterns of behavior got us all where we are today. Mostly broke and probably in BK. We must change of path if we want a different life.
I can answer your question only as I have done it, and that is to save like crazy and get your credit report cleaned up and a FICO score of at least 700. When you have done this and have 20% downpayment saved up you are ready to buy a house that you own and it does not own you.

Interest only, variable rate and 80/20% loans when used will cause a financial suscide most of the time. Yes there a few exceptions, but for the most part if you want finacnial peace these is only one path to that and that is to use credit wisely and reduce its use as times passes.
Regards,
emoney

[no_it_all]

Wow, there is some REALLY, REALLY good advice in this thread!

[moneytree]

Thanks for the replies...(read thru quickly...)

I don't have much time here, so I'll be back to read through the posts more carefully. Now the #1 reason for us to even consider buying is to get $ back at tax time. Where we live, rent $ is a wash. We are able to afford renting new homes (not much maintenance, but anything can happen...) as well as afford to buy NEW. Five years ago my sister bought out here for $180K. The homes we would consider are more sq. footage and nicer locations for $270. We're waiting to hear from the tax guy on a projected tax refund for '07 if we buy. We went from $9K in refunds when we had an 80/20 loan a few years ago to renting and maybe having to pay in $500. Take rent x's 4 yrs and that's over $71K down the drain. (if we waited another 2 yrs. after BK) The housing market around here is a buyers market now, because of all the new home inventory,and it could drop a bit more in the next few years, but it's all projected that millions will be flocking here from CA (we're in WA) to get away from their ridiculous housing market. Even if the 'projections' are off, we have felt that buying would be the best thing in the long run (but again, will consider the other posts...) Our home will be appreciating, guaranteed. As far as not being approved refinancing in 2 yrs, I'll look into that. And the costs involved, etc..no idea.

I guess I assumed that so many had 80/20 loans. My parents relocated out here too and my father being a Veteran, is getting his 5th home loan in 40 yrs. They've had new homes built 4 times now. They did built equity in each home, but not much. They moved for personal reasons (needed a bigger home). But they are also only qualifying for a 'high risk' loan due to the amt. of their debt. Who knows if they'll end up filing a CH.13 some day. My Mother is telling me that a high risk loan is similar to an 80/20?

Gotta run...

more later...

[SinkingFast]

We're waiting to hear from the tax guy on a projected tax refund for '07 if we buy. We went from $9K in refunds when we had an 80/20 loan a few years ago to renting and maybe having to pay in $500.

Not getting a fat return to paying $500 a year is not the only thing you went to.

You went BANKRUPT!!

If your old plan worked so well, why did you file BK??!!!

Stop and think about that for a minute or two.

Say you do buy a house,............ If you loose your job and have to move to another State for new work, many Landlords will forgive the remainder of the Lease and just keep your Security Deposit. If you own, you have a house to sell. Payments you HAVE to keep up or you go into Foreclosure. Only now, you won't have the BK safety net available to protect you against any deficiency balance.

Do what you want to do. But it sounds to me like you didn't learn the first time around.

People who do not learn from the past are doomed to repeat the same mistakes.

[BK'd-Betty]

Not getting a fat return to paying $500 a year is not the only thing you went to.

You went BANKRUPT!!

Re-read the above 3 times if you have to! It may be hard to read - but it's a reality check!

as well as afford to buy NEW

By your own admission - you know you are buying more house than you can afford!

We can all convince ourselves that our wants are our needs, but in the end, we're only fooling ourselves - and ultimately - we each pay our own price.

Good luck to you!

[SinkingFast]

We're waiting to hear from the tax guy on a projected tax refund for '07 if we buy. We went from $9K in refunds when we had an 80/20 loan a few years ago to renting and maybe having to pay in $500.

Let's do a little math, shall we??!!

You say you got a $9K income tax refund. And just for the sake of example, let's say that trend will continue with the new house payments.

At $2400/mo, INTEREST ONLY, you'll pay $28,800 the first year. Subtract out your $9K income tax refund, you paid $19,800/year for a place to live. That's payments only. Does not count homeowner's insurance and property taxes.

Based on your comment above, you currently pay right at $1480/mo rent. That's $17,760/year plus the cost of Renter's insurance if you have that. Which I know well costs WAY less than Homeowner's insurance. No property taxes.

Looks like renting is still at least $2K/year cheaper than buying to me.

[HHM]

I don't have much time here, so I'll be back to read through the posts more carefully. Now the #1 reason for us to even consider buying is to get $ back at tax time. Where we live, rent $ is a wash. We are able to afford renting new homes (not much maintenance, but anything can happen...) as well as afford to buy NEW. Five years ago my sister bought out here for $180K. The homes we would consider are more sq. footage and nicer locations for $270. We're waiting to hear from the tax guy on a projected tax refund for '07 if we buy. We went from $9K in refunds when we had an 80/20 loan a few years ago to renting and maybe having to pay in $500. Take rent x's 4 yrs and that's over $71K down the drain. (if we waited another 2 yrs. after BK) The housing market around here is a buyers market now, because of all the new home inventory,and it could drop a bit more in the next few years, but it's all projected that millions will be flocking here from CA (we're in WA) to get away from their ridiculous housing market. Even if the 'projections' are off, we have felt that buying would be the best thing in the long run (but again, will consider the other posts...) Our home will be appreciating, guaranteed. As far as not being approved refinancing in 2 yrs, I'll look into that. And the costs involved, etc..no idea.

I guess I assumed that so many had 80/20 loans. My parents relocated out here too and my father being a Veteran, is getting his 5th home loan in 40 yrs. They've had new homes built 4 times now. They did built equity in each home, but not much. They moved for personal reasons (needed a bigger home). But they are also only qualifying for a 'high risk' loan due to the amt. of their debt. Who knows if they'll end up filing a CH.13 some day. My Mother is telling me that a high risk loan is similar to an 80/20?

Gotta run...

more later...

That is a very common way of looking at it, but it is also magnificently flawed.

First, the comparison between rent vs. mortgage is a bit unfair because housing expense is a "necessity", so rent is NOT exactly "throwing" money away. And your argument glaringly overlooks the simple fact that paying interest is also, strictly speaking "throwing" money away as all it is is you paying the bank for the privilege of borrowing money. Otherwise, you don't get much benefit, I will address the tax refund below.

Second, no one is saying don't do an 80/20 loan, the opinion here has been universal that you should not do an 80/20 "interest only" loan. You are also failing to compare the right things, you are vaguely comparing rent to mortgage. In your case, you should be comparing a "conforming" loan with a non-conforming loan. I'd still advise not to seek an 80/20, but instead try to do an 80/15 and put 5% percent down. The benefit to doing so is you can usually reduce the interest on the second by a point or two (point-0.25%) and gives you some leverage to negotiate lower closing costs, and gives you a small equity cushion (assume you get a fair appraisal).

Based on your numbers ($71K for 4 years), you are paying $1,480 (rounded up) per month in rent. If you bought a $270,000 house on an 80/20, here is what you're likely looking at, (given the fact that you are going to try to do this right out of BK and your credit is in the toilet), but, being generous with the interest rates.

80%, $216,000 on a 10/30 at 6.875%,
Interest Only Payment: $1,237.50 (regular payment would be $1,418.97)
20%, $54,000 on a 5/30 at 8.00%
Interest Only Payment: $360.00 (regular payment would be $396.23)

Thus, your total, interest only, payment would be $1,597.50
If you did this as a regular mortgage, paying P&I, 1,815.20

Note, none of these figures factor in closing costs or insurance.

Thus, in a given year, on the 1st interest only loan, you would be paying $14,850 in interest. If you are in the 28% tax bracket, you can probably deduct $4,138, on the 2nd you would pay $4,320 in interest only, and probably deduct about $1,205, for a total deduction of $5,343.

Your total rent in a given year is $17,750. Your total Interest only payments in a given year are $19,170. And your anticipated refund if $5,343. The difference between rent and the interest only payments in a year $1,420. So, you will realize a net gain of $3,923. If you did the regular loan, you realize roughly the same interest tax benefit, but would realize an additional $2,325 in home equity (or at least a reduction in the principal owed on the mortgage).

I suppose the question is, whether you have the discipline to make this work. If you "save" the tax refund (which apparently you don't because you are now renting and filing for bK), that is the only way to come out ahead. Also, if you go interest only, you need to have the discipline to save the difference between a regular mortgage payment and the interest only payment, about $218 per month, so at least you will have the cash equivalent of having built up equity. However, given your past and the way your thinking about the issue, I am understandably skeptical. The other factor to consider is the health of the real estate market, are prices depreciating or appreciating.

[ekelly4200]

[

Time to recover and save for somewhat of a downpayment. Your mortgage payment should be 25% of your take home pay or less - otherwise you can't afford it. If 2400 is 25% of your pay, I don't think you would qualifying for ch. 7 in the first place. Don't be a victim to predatory lending. Take some time to do a search on loan fraud - inflated appraisals are rampant and evil. Why would a lender inflate an appraisal and over loan on the property? Because they can and after your bk, you can't do a thing about it. You default and they get the house, plus all your money prior to that, PLUS the amount of default once they sell it as auction.[/QUOTE]

Don't own a home but hoping one day to. So if I understand this..mortgage payment should be no more than 25% of take home. SO if you get paid weekly basically it should not be more than 1 weeks pay? how the heck is that possible? Right now our rent is more than that and any home here would be way more than that. I truly dont know how it is possible sometimes. DH makes good money but I guess living here in NYC we are priced right out of owning a home. It kills me to be paying someone elses mortgage for them. Ok rambling here lol