Mortgage, How dumb is this idea????

Discussion in 'Credit Talk' started by J. Vick 71, Sep 3, 2003.

  1. J. Vick 71

    J. Vick 71 Well-Known Member

    I just told my landlord that I wouldn't be interested in a 12 month lease and decided to pay extra and go month to month. I would like to buy a house in the next few months and thought of going about it this way.

    Me 2yr discharge December 2003
    Girlfriend of 11yrs discharge December 2004

    Both of our FICO scores average on 6 reports very high 600's.

    We can't wait for her to hit the 2yr discharge

    From what I have heard she can't really help out by being on a mortgage so maybe I should do it this way to qualify for one.

    Right now car payments and total debt $0

    Max out all of her current credit cards and do a max loan on her 401k.

    Do a stated income mortgage in my name only.
    At that point I would probably have enough cash for a down payment and my debts would look like $0 and my FICO score would stay high enough.

    My income is around 35k and hers is around 20k
    Try for something around 170k total.

    I think the the best way to qualify by myself would be a stated income mortgage?

    6 years at job, stated but not checked income, and credit reports checked.

    Is this a dumb idea or have any suggestions?
  2. snakeman

    snakeman Well-Known Member

    The way I see it is that you must think that your score is just barely "there". The fact is, there are many mortgage lenders who will do a stated income loan (80% LTV max) with any score over 500! (At least 2 years post BK).

    I think it isn't a "bad idea" but I thought I would at least mention that if you were looking to do a 170k mortgage, your probably looking at having to come up with at least 35k down at closing. If you plan on taking this out of your ladies credit cards and/or 401k, this sight would be very helpful for you in about 2 years when your looking at rebuilding your credit after the foreclosure and CC judgments....

    Just a thought....

    I guess I wouldn't "rob Peter to pay Paul". I have done this and seen others do never works out.
    The best way to come up with the LTV number that your looking for is to find a property with some equity built in. Now I don't no where your from but one "redneck" way of doing it would be to do a new construction loan with say a nice 3 or 4 bedrrom manufactured home and a nice lot somewhere. the most you'll pay for this in a nice neighborhood would be around 100k. The thing is though, it is already worth twice that as soon as its switched from a title to a deed.

    That my friend, is the way for you to get the money for the house you want without putting yourselves in a situation whereby if you needed money, you have nothing to borrow against. If its all been borrowed to secure the 170k home you want, then what happens if you need more in an emergency?

    This is what a good friend of ours did and it worked.
    He wanted a 200k home. Didnt have the money, so he did the manufactured home thing and 6 months later sold it for a heafty profit and with that mortgage under his belt took the equity and got his dream home.

    All good things in time.
  3. Rina

    Rina Well-Known Member

    IMOHO this seems too radical, even for someone with good credit. Taking on a mortgage is a multi-year investment, and you literally can't afford to not have a backup plan in case of disability (which has a higher probability of occuring than death at your age).

    Do you both have life insurance? Do you both have adequate disability insurance? Would you still be able to afford the house you want based on DI payouts? I think not.

    You have no car payments now - how will you buy one, maybe two, when the current cars go or have a major problem? Cars, even new, have some need of regular maintenance. It's not a matter of if, but when your car or your house will need something, but you should plan for it.

    What kind of % would you have for a down payment? Can you really afford a $170K house? According to whom? Please don't tell me the bank. They don't care if you ever go on a vacation, dine out, or have kids.

    No way should you consider a house 3 times your current income when you don't have adequate savings.

    How many months of an emergency fund do you have? Most experts are advising 6-8 months of expenses, given the economy. Once you've tapped your 401(k) accounts, you will not be allowed to double dip unless there's a financial hardship.

    Do you have a budget now? Do you have one based on worst case scenario expenses for your new home (i.e highest gas bills in winter)? Have you considered how the reduced take home pay (from 401k repayment) will affect you? What are you willing to cut out of your budget to accomodate your goals?

    With your credit record, maxing out your credit cards in order to get into a house will raise all kinds of red flags about your ability and willingness to repay. How will you repay those cards? By refinancing the house, and putting unsecured debt onto your house?

    You're playing with fire. Cool your jets, build up your EF, then save for a house.
  4. J. Vick 71

    J. Vick 71 Well-Known Member

    $4000 on her credit cards, $0 on mine not 2 bad
    3 cars are paid off 2002,1996,1989
    I have a little life insurance
    Disability is not a concern right now but thanx
    $6000 on 401k loan over 5 years isn't that bad
    No kids now or in the future
    3 times total income is that too much?
    Over $200,000 median in this area

    I think I figured out that if I save more years and wait the prices will go up and it will never end and I would never have enough money to do this. Not to mention % rates.

    I'd say roll the dice and take a chance on the future while I still can?
  5. J. Vick 71

    J. Vick 71 Well-Known Member

    Actually snakeman and Rina thank you for the advise and preparing for the worst case situation.

    This is the way I see it though and yes I probably am NUTS!

    First of all we have no kids and will not in the future. If kids were to be involved we would not EVEN think about the risks or whatever.

    I want to live in a house so bad I will do anything at this point to be broke for MANY years. Her at 20k and me at 35k are worst case incomes economy or not. We could even both work and even walk to a gas station or fast food job and probably make 20k each with no cars ever in the worst situation. In this area anyways full time 40 hours a week. 20k+20k=40k. My friends make fun of me all the time how cheap I am these days. If I eat out it's the 99 cent value menu fast food. 40k times 30 years would be an income of $1,200,000 compared to a mortgage of $170,000 over 30 years.

    This really is thought out and it's not like I make more money and want a more expensive house and should have to worry about disability or death. If my girlfreind became disabled you better beleive I would work 80 hours a week if I had to. All I need to do at this point is to qualify to get in some how.

    I feel the longer I wait the more these damn houses keep going up. I should take the chance now and find a way to get in. Broke and eating hot dogs at a house would be a luxury! Any thing on top of that would be great and I realize that.

    I have seen bad situations also with the economy and families going to crap. This really is a low risk long term idea that needs to be taken care of now.
    I can't wait anymore and need ideas how to get in on this. Snakeman and Rina thank you for the time on your posts though!

    Any ideas to do it at this point?
  6. Rina

    Rina Well-Known Member

    Can you sell one or two of those cars? It sure beats withdrawing the money from your 401(k). If you can earn more than what you are now, it's time to start. If the 20K is her PT income, can she work more hours or get a better paying job?

    I don't understand your statement about DI. Do you think it's unlikely?? You couldn't be more wrong. In your 20s-40s it's much more probable than death.

    Granted you can work your way to the 6-8 months worth of EF, but you should have at least 2.
  7. snakeman

    snakeman Well-Known Member

    I might know of a lender who can help you.

    What state are you in?

    What was your Credit Scores again?

    and how long ago was your BK Discharged/dismissed?

    Do you have proof of paying rent/mortgage for the last 12 months?

    get back to me and let me know, I might be able to get you headed in the right direction.
  8. SoParkDiva

    SoParkDiva Well-Known Member

    I would never tell a landlord that I would "pay extra" to go month-to-month. I went month-to-month when my lease was up and I didn't pay a dime extra. In fact my rent stayed the same for 4 years!

    And this was a big apartment complex. Every year the manager of the complex would promise me incentives like new carpeting or fresh paintjob if I would sign a new lease. I always refused.
  9. kickman

    kickman Well-Known Member

    Re: Re: Mortgage, How dumb is this idea????

    In theory, this would be sage advice. In today's reality though, homes--at least those that are worth buying--just aren't priced accordingly. There are fewer and fewer regions of the country where the median home price is in line with the median household income. Moreover, rent prices are approaching that of mortgages. As such, most renters' savings are't keeping pace with the cost increase of homes.

    Still Rina's point to save, save, save has merit. It's just that it's nearly impossible to save enough money to buy a home under the ideal circumstances. The reality is, most first time homebuyers today will be more indebted and financially stretched than any previous generation.

    At some point, you gotta look at what's ideal, what's real and proceed with as much careful thought as possible. Me? I took a drastic approach and moved my family in with my inlaws so that we could accumulate the kind of savings that Rina's talking about.
  10. Hedwig

    Hedwig Well-Known Member

    Re: Re: Mortgage, How dumb is this idea????

    You say if she became disabled you'd work 80 hours a week. What if you BOTH became disabled? Let's say you're in a car accident (your fault, so there's no one to sue) and you're both unable to work. Now what? And if whoever borrows from the 401(k) quits or loses that job, the loan is due immediately. Do you have money for that?

    Instead of trying for a high down payment, why not try for an FHA loan? You can get them with as little as 3% down. Get a smaller place to start, you'll still get appreciation and all of the associated tax breaks. See how you are financially, then move up. You'll have some equity when you sell this house and you can use if for the next one.
  11. kickman

    kickman Well-Known Member

    Re: Re: Re: Mortgage, How dumb is this idea????

    FHA with 3% down is very popular as most people just don't have the traditional 20% down. It's a tough call because with 3% down, you've got more monthly mortgage do handle. And, with a soft economy, home values aren't skyrocketing like they were in the bubble economy.

    There's no "safe" way to buy a home today. Just pray and be thankful for whatever comes.
  12. Rina

    Rina Well-Known Member

    Re: Re: Re: Mortgage, How dumb is this idea????

    Downside of FHA loans - mortgage insurance premium never goes away, if your lender doesn't want it to. Not to mention the added requirements for inspection, etc. that comes by virtue of it being a bureaucratic program.

    I know how tough some markets are - I live in central NJ, where you can't touch a decent SFH in a nice area for less than 275K-300K. THs in my parents' area have cracked the $300K ceiling, and others are quickly following suit.

    At least save the 5% for a conventional loan down payment, and you'll have better terms to choose from.
  13. lbrown59

    lbrown59 Well-Known Member

  14. Hedwig

    Hedwig Well-Known Member

    Re: Re: Re: Mortgage, How dumb is this idea????

    True, you may not get released from the PMI on an FHA loan. But you may also refinance out of it at a later date. As far as the inspection, etc, goes--it's a pain when you own the home and are just refinancing. But when you're just buying the home, it can work in your favor to make sure you don't have too many big surprises right after you buy the home. Any major flaws should be found and corrected before the loan is approved.

    As far as values, depends on where you live. I live within 75 miles of DC and Baltimore, and our prices are going nowhere but up and up. But don't buy the home as an investment, buy it because you want to live there. Then if the value doesn't go up rapidly, at least you know you've paid your money for a place to live. If you paid rent, you wouldn't even have an asset.
  15. J. Vick 71

    J. Vick 71 Well-Known Member

    Re: Re: Re: Mortgage, How dumb is this idea????

    Rina, 20k on her end is part-time and yes she could work more for more income and might later on. It is a safe number and I don't want to count on more in the future. The incomes are safe if we are healthy on both ends.

    I am actually getting ready to try to sell the 96 this weekend. I'll say a safe $1000 on that easily.

    As far as DI that would actually fall into any situation renting or owning. It's good advise for most and I will move that up on the priority list. Sounds like you know of a situation personally. Life insurance the same thing, I put it off in the past and thought about quitting smoking for a year to get cheaper rates. I have a little bit of life insurance now and should move that up. It's on the to do list. Thanx!

    snakeman, #1 Minnesota #2 very high 600's or very low 700's. #3 proof of rent at least 7 straight years and never late. #4 December 2003 me December 2004 her on 2yr discharge.

    FHA will not be an option for me on this one. If this is done in just my name I do not make enough income for FHA. Her 2 year discharge is to long to wait for at this point. From what I have heard she would not help at all, but her FICO scores will be around 690 next month if we don't touch her credit cards. Right now we have no debt unless I decide to go with this NUTS plan of mine. I can't think of another way.

    Stated income mortgage
    In my name only
    Run my 3 reports
    Max out her 401k loan and credit cards for more down payment

    Any ideas, help, advise, or comments. GO FOR IT!
  16. lbrown59

    lbrown59 Well-Known Member

    Re: Re: Re: Re: Mortgage, How dumb is this idea????

    Life insurance the same thing, I put it off in the past and thought about quitting smoking for a year to get cheaper rates. I have a little bit of life insurance now and should move that up. It's on the to do list. Thanx!

    Any ideas, help, advise, or comments. GO FOR IT!

    Don't buy the wrong life insurance.
  17. J. Vick 71

    J. Vick 71 Well-Known Member

    Re: Re: Re: Re: Mortgage, How dumb is this idea????

    lbrown59, thanx for the life insurance comment. If I need anymore advise on insurance I'll let you know on a different thread.

    Anyways I want to roll the dice and get a house somehow. Any ideas on a way to do this? My ideas are probaly insane but I'll take the chance now. Maybe if this all go's bad I can be the first Cnetter to say I am a proud member of the 300 club. LOL. Any ideas or help or should I go his route?
  18. lbrown59

    lbrown59 Well-Known Member

    Re: Re: Re: Re: Re: Mortgage, How dumb is this idea????

    *Don't buy a home that takes money from your retirement plan.Buy one that adds money to it!
  19. Rina

    Rina Well-Known Member

    Yes, having worked in the field 5 years ago, I came across more people than you would expect who had a disability when they had no history of medical problems. Until you start getting older, the cause of disability is more likely to be an accident (predominantly cars).

    Likewise with life insurance, there were people who waited too long (couldn't afford it, didn't want to commit), but now have chronic illnesses that will either prevent them from getting any insurance, or only qualify for cutthroat rates.

    I'm not pushy, so I wouldn't have done it, but I also met people who were prodded by their agents to get LI and/or DI, and the tragedies that befell them were tempered by the fact that they had something to fall back on.

    One of the things I used to tell people is how I browbeated an agent who I thought was trying to sell my Mom too much life insurance some years before. Well, guess what? Here I was an agent, unable to find reasonable life insurance terms for her because she became diabetic.

    Trust me, when the day came to deliver a proceeds check, no one ever told me their spouse\parent bought too much life insurance.
  20. SoParkDiva

    SoParkDiva Well-Known Member

    This is a very bad move. If she loses her job that money is due immediately unless she's vested. And maxing out her credit cards is also a bad move. The interest rates on cash advances are nothing nice. Why put her in serious debt just to get a house in a few months?

    You waited 11 years to get a house. What's 1 more year? Here's a plan: Leave her 401k and her CC's untouched. Get a second job or work extra hours a week on your job. Save your money and pay down her CC balances. Marry your girlfriend and in a year's time you can use her 401k as cash in reserves (without actually touching it) to show a bank that you can make your mortgage if you fall on hard times.

    Apply for a 5/1 ARM loan, or a 3-2-1 buydown or a 80/20 loan. You will both qualify for a home worth $165-185k with no money down.

    Even if you are qualified for stated only income loan, banks still want to see cash in reserves. At least 10% of the home purchase price.

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