Has anyone out there bought a house by themselves with paid collections, lates from 3-4 years ago? And how difficult was it to get financing?
kel Speaking as a mortgage professional, I can tell you that you should be able to get a decent mortgage as long as there are no open collections and no recent lates. You should qualify FHA if the loan amount is within guidelines. If your scores are sufficient, you may qualify for conventional mortgage going through an automated underwriting such as DO or LP. fla-tan
Re: Re: Buying house w/ derogs Does this include charge-offs? It's $81 and not ours, but the OC verified... BTW, I've learned a ton from your posts Thanks!!
Re: Re: Buying house w/ derogs As fla-tan said, you'll qualify. Question is, how much, and for how low. Since you owe almost nothing, this doesn't apply to you as much as it would, say, someone with 5K debt and up. But for the benefit of all, here goes. Any unpaid delinquency that can't be legitimately justified, as far as the bank is concerned, is a NEGATIVE. The more the amount, the less the lender feels they can trust you to pay them back. You may qualify, but the more you owe, the less they'll approve you for. Also, if you want that nice loan rate that everyone's talking about these days because the rates are so low, think again. You will not be entitled to that sweet finance rate, which can cost up to 100K or more over 30 years. That's based on a 2 percent hike over the current average rates of 5.75, over a 30 yr period for 200K loan. Better take care of that derog - especially if it's unpaid. But the best derog is one that doesn't appear on your report at all anymore.
Re: Re: Re: Buying house w/ derogs That's a very pessimistic point of view. Derogs don't automatically make a person sub-prime. If there are derogs, the lender will look at how old they are, their status, and the other factors of the loan, such as the value of the home and debt to income ratios. Many people with derogs are able to get conforming loans at the same rates (or very close) as everyone else. If for whatever reason a customer does need a sub-prime loan to finance their home, don't make the mistake of assuming they will keep that loan for 30 years. Few people actually keep their mortgage longer than four years before they sell or refinance. Things change, and people restructure their debt to fit their new situation.
Re: Re: Re: Re: Buying house w/ derogs Apologies for sounding pessimistic -- my advice was for anyone similar to my credit situation, and I didn't want to hype the best-case scenario. I went through an ugly mtg application last month with my wife (who wanted to cry later that day), and I wouldn't want a fellow boarder to go in and not be prepared for what could happen. Of course, there is the refinance option, but I'm pointing out that the initial qualification for derog credit will likely be at least slightly higher than the current market rates, at a time when rates are at an all-time low. Keep in mind, your buying rate will have a huge impact on how much house you can afford now -- REFI only applies to the house you already qualified for.
Re: Re: Re: Re: Buying house w/ derogs Ernie, I had scores like that in Dec 02 and bt @ 160000 house, got 103% financing but at 7.76% and a steep 6% 2 year prepay penalty. I had an 8k unpaid chargeoff from 1996 along with 3-4 other smaller ones and a 2k Discover chargeoff. It can be done, the lender was Decision One. It can be done. WALLST
Re: Re: Re: Re: Buying house w/ derogs WALLST, I was offered 7.75% for 180K 30yrs, but I declined to accept, because I know folks getting 5.75% right now. I also have 3.5K C/O debt. Your situation seems very similar to mine, except I'm not thrilled about accepting the "derog person's rate". Can I ask, do you plan to refi anytime in the future? Was it your first house? Did they make you show proof that your derogs were all paid in full? And I guess most importantly for my benefit, what did they ask you to put down total (closing, downpay, etc), and how much extra did they want to see in your bank? This will give me a better picture of how close I am or not. Thanks!
Re: Re: Re: Re: Buying house w/ derogs In California it's common for the lender to have a 2-3 year prepayment penalty if you have some derogs. This way they lock in the rate incase you clean your credit they still make a killing off you for a couple years. It's ironic...they don't want you at first...then they don't want you to go afterwards.
Re: Re: Re: Re: Re: Buying house w/ derogs If that's without PMI, it's not a bad deal at all. Once you factor that into the conforming loans, often the best deal is in the non-conforming loans.
Re: Re: Re: Re: Buying house w/ derogs {Sorry... This was the reply I meant to post, but the "time to edit" ran out, and the administrators never got back to my email. I'm sure it's because they are swamped with other similar requests.} WALLST, Thanks, that's good information. I was offered 7.75% for 180K 30yrs, but I declined to accept, because I know folks getting 5.75% right now. I also have 3.5K C/O debt. Your situation seems very similar to mine. However, I'm not thrilled about accepting the "derog person's rate", so I will hold out for a sweeter deal. Here's why I'm so down on high rates for derog folks: 180K 30 yrs @ 5.75 = $1,050 / month mtg. 180K 30 yrs @ 7.75 = $1,289 / month mtg. The difference there is huge, in terms of how much house you can afford based on your debt to income ratio. And if you stayed the entire 30 yrs and never refi (rather unlikely), you would end up paying $86K more with the 7.75 rate. But let's check the math if you refinance in 4 years (very likely): 180K 4 yrs @ 5.75 = you paid $50,400 total mtg payments. 180K 4 yrs @ 7.75 on the same house = $61,872. You paid $11,472 more in 4 yrs! Why, you might as well have been paying a 4yr auto loan at the same time as your mtg at that rate! See why the rate is so critical to me? Can I ask you, do you plan to refi anytime in the future? Was it your first house? Did they make you show proof that your derogs were all paid in full? And I guess most importantly for my benefit, what did they ask you to put down total (closing, downpay, etc), and how much extra did they want to see in your bank? This will give me a better picture of how close I am or not. Thanks!
Re: Re: Re: Re: Re: Buying house w/ derogs Let me play devils advocate for a sec. Sub-prime loans allow for higher debt to income ratios, as high as 55%. For this reason, you're often able to qualify for a more expensive home than you could using a conforming loan. Many lenders prefer the term non-conforming to sub-prime. Why? Because sub-prime implies bad credit, yet very often people with very good credit choose these loans. They offer a greater degree of flexability, they allow a borrower to step outside of the normal rules of credit, income, and debt ratios, and they are willing to pay more to get this flexability. At the same time, the person who didn't qualify for the conforming loan and turned down the sub-prime loan missed out on four years of home ownership and property appreciation. yes, the sub-prime borrower paid an extra $11,472 dollars, but in most markets, an $180,000 home would have appreciated much more than that in that time. You're right, it's much better to be prime than sub-prime, but you may also miss out if you don't keep an open mind.
Re: Re: Re: Re: Re: Buying house w/ derogs Mycroft, I thank you for that debate. A multi-faceted discussion gives folks like me and others a chance to view from every angle. I have to agree that home ownership appreciation, while rates are at a 40 yr low, is indeed an overwhelming reason to accept a sub-prime rate. As you said, better to be prime, but better to be sub prime than nothing at all. I still stick to my following statement: So if your credit is borderline, and there's something you can do in the 30-90 day timeframe to possibly boost that score (like anything in these forums), I say go for it! You may be able to afford another bedroom or bathroom because of it. And probably nobody here will disagree that rates won't shoot back up in 3 months. -Frantic First-Time Home-Buyer-To-Be Anal-Retentive Perfectionist ;-)
Re: Re: Re: Re: Re: Buying house w/ derogs Not only the home appreciation, but you also have equity. Even at sub prime you are building equity. Where if you rent, you are throwing money away.
