How to buy a home with bad debt?
November 7, 2005 5:53 AM Subscribe
I want to buy a house but i don't earn a lot and i have appalling credit status. What can i do about it?
Are you handy? I see fixer-uppers all the time where I live for sale with owner financing or rent-to-own options. But be sure you know what you are getting into.
posted by LarryC at 6:28 AM on November 7, 2005
posted by LarryC at 6:28 AM on November 7, 2005
brrrrr
1. What exactly is "appalling credit status?"
2. Do you earn enough to save some for a down-payment?
3. Do you have any cash reserves?
posted by Makebusy7 at 6:28 AM on November 7, 2005
1. What exactly is "appalling credit status?"
2. Do you earn enough to save some for a down-payment?
3. Do you have any cash reserves?
posted by Makebusy7 at 6:28 AM on November 7, 2005
You can fix your appalling credit status by paying your bills on time for a couple of years. Get a copy of your credit report(s) now and figure out exactly what you've got to work on. I had some serious financial trouble several years back--so serious, in fact, that I had to start rebuilding my credit rating again with a secured credit card.
These days, with debts paid and a regular track record of paying bills on time, my credit score qualifies me for the lowest interest rates generally available. You can see a remarkable improvement in as little as twelve months, and once you've had your financial shit together for two or three years things will look significantly better to potential creditors.
If your credit is truly "appalling," unless you can find owner financing (as noted above), you will be stuck in the subprime mortgage market if you can get a mortgage at all. Avoid. Get your economic house in order first before you try to buy the house to live in.
posted by enrevanche at 7:08 AM on November 7, 2005
These days, with debts paid and a regular track record of paying bills on time, my credit score qualifies me for the lowest interest rates generally available. You can see a remarkable improvement in as little as twelve months, and once you've had your financial shit together for two or three years things will look significantly better to potential creditors.
If your credit is truly "appalling," unless you can find owner financing (as noted above), you will be stuck in the subprime mortgage market if you can get a mortgage at all. Avoid. Get your economic house in order first before you try to buy the house to live in.
posted by enrevanche at 7:08 AM on November 7, 2005
A friend recently moved back to his home city and spent a lot of time analyzing the financial wisdom of purchasing a house. He found out that for a similar monthly payment he could rent a similar, if not better, property. When he layered in the costs of maintenance, property taxes, the returns he could expect by investing the downpayment rather than using it towards a house and a handful of other things, it didn't make any sense for him to purchase. Even assuming optimistic value appreciation, he couldn't make the numbers work. To be fair, I think he was comparing an apartment that costs $200 or so less a month compared to what his monthly mortgage would be - though, his apartment is probably nicer than the condo he could've bought.
The current low, but rising, interest rate environment probably gives some reason to act now rather than wait, but it still seems a risky proposition to me - at least financially. If it is more of a lifestyle and stability issue, that's different but don't fool yourself into thinking it's the best move financial until you do the homework. I'm not sure where the posters lives (Indio, CA maybe?) - but if the market for rentals is similar to lot of other markets right now (i.e. similar properties rent for less than the mortgage payment would be), I think it makes sense to at least wait until his/her credit is improved.
posted by mullacc at 7:43 AM on November 7, 2005
The current low, but rising, interest rate environment probably gives some reason to act now rather than wait, but it still seems a risky proposition to me - at least financially. If it is more of a lifestyle and stability issue, that's different but don't fool yourself into thinking it's the best move financial until you do the homework. I'm not sure where the posters lives (Indio, CA maybe?) - but if the market for rentals is similar to lot of other markets right now (i.e. similar properties rent for less than the mortgage payment would be), I think it makes sense to at least wait until his/her credit is improved.
posted by mullacc at 7:43 AM on November 7, 2005
find a home seller that will let you finance the house through them... Many home seller do this as scams by writing tough contracts that default if you are over x days late on a payment.
But there are some people with an extra house that is totally paid for (because of a recent marrage or whatever) that are honest...and lazy enough to not want to fix up a house to sell on the market.
So find someone NOT in the business of seller financing with an as is property, and get your own contract written through your lawyer.
posted by mike mackey at 7:47 AM on November 7, 2005
But there are some people with an extra house that is totally paid for (because of a recent marrage or whatever) that are honest...and lazy enough to not want to fix up a house to sell on the market.
So find someone NOT in the business of seller financing with an as is property, and get your own contract written through your lawyer.
posted by mike mackey at 7:47 AM on November 7, 2005
There are some areas of the country where it is almost impossible to own a house without making six figures. However, there are also parts of the country where owning a nice house in a decent neighborhood can be done on a salary as small as $23,000 a year or even less. If you have a low paying job that can be found elsewhere in the US (I hope it's okay to assume that you are American), think about moving. I recently purchased a house with a graduate student's stipend, but I did it in a Rust-Belt city.
Even in an inexpensive city a mortgage will be tough to get at a decent rate with bad credit. I had good credit and had my down-payment and mortgage insurance waived. Pay any delinquent payments, pay down your current debt. Do whatever you can to get rid of car payments and other drags on your income. The bank will want to know how much money you have to pay them each month.
Also, there are some programs to help first-time, low-income homeowners with down payments and closing costs. Check with your City Councilperson.
posted by Alison at 7:53 AM on November 7, 2005
Even in an inexpensive city a mortgage will be tough to get at a decent rate with bad credit. I had good credit and had my down-payment and mortgage insurance waived. Pay any delinquent payments, pay down your current debt. Do whatever you can to get rid of car payments and other drags on your income. The bank will want to know how much money you have to pay them each month.
Also, there are some programs to help first-time, low-income homeowners with down payments and closing costs. Check with your City Councilperson.
posted by Alison at 7:53 AM on November 7, 2005
If you are in the UK (you have no visible location info in your profile) you can contact your local council about house-sharing opportunities.
"You don't have to be a council or housing association tenant to get a shared ownership place. Shared ownership schemes allow you to buy a share of a property while the rest is owned by a housing association. You pay a mortgage on the share you own, and rent on the rest. You can buy more shares later on if you wish, and may eventually be able to afford to buy the whole property."
If you are a UK resident then get in touch with your local housing association and have a word about the options. Good luck!
posted by longbaugh at 7:54 AM on November 7, 2005
"You don't have to be a council or housing association tenant to get a shared ownership place. Shared ownership schemes allow you to buy a share of a property while the rest is owned by a housing association. You pay a mortgage on the share you own, and rent on the rest. You can buy more shares later on if you wish, and may eventually be able to afford to buy the whole property."
If you are a UK resident then get in touch with your local housing association and have a word about the options. Good luck!
posted by longbaugh at 7:54 AM on November 7, 2005
Depending on your state, there may be counseling and other programs available. My state's housing authority sponsors tons of programs for 1st time and low income homebuyers.
posted by miss tea at 8:49 AM on November 7, 2005
posted by miss tea at 8:49 AM on November 7, 2005
You may qualify for a FHA (or HUD) loan. The qualifications are a bit stringent, but the purpose of the loan is to help low-income folks on first-home purchases.
posted by thanotopsis at 9:09 AM on November 7, 2005
posted by thanotopsis at 9:09 AM on November 7, 2005
Art of Credit's forums has a ton of information on improving your scores and is worthwhile reading for understanding the realities of the credit business.
posted by phearlez at 9:19 AM on November 7, 2005
posted by phearlez at 9:19 AM on November 7, 2005
Incidentally indio1919 - a little more information from you would have been really helpful - your location, rough income strata etc. Whilst you may wish to retain some anonymity about this it would help us to assist you a lot more.
posted by longbaugh at 9:34 AM on November 7, 2005
posted by longbaugh at 9:34 AM on November 7, 2005
I want to buy a house but i don't earn a lot and i have appalling credit status. What can I do about it?
There are a certain percentage of folks (the percentage varies depending on the local housing market and demographics) who absolutely are not going to be able to afford any house except possibly something so totally rundown and in such an unsafe neighborhood that no one wants it - and even then, getting financing may be impossible.
If you're one of those people, then what you can do about it is to reduce your spending, possibly take a second job, pay off your bills, and look at ways to improve your job skills so that you can earn more in the future. If you do that, at some point (after some number of years) you'll be able to afford a house, and banks will be willing to loan you money.
And do be aware that there are a lot of scams out there ("repair your credit!" "no money down") that will attempt to take what little money you do have (or to defraud someone else, such as a mortgage lender, with your assistance)
posted by WestCoaster at 1:14 PM on November 7, 2005
There are a certain percentage of folks (the percentage varies depending on the local housing market and demographics) who absolutely are not going to be able to afford any house except possibly something so totally rundown and in such an unsafe neighborhood that no one wants it - and even then, getting financing may be impossible.
If you're one of those people, then what you can do about it is to reduce your spending, possibly take a second job, pay off your bills, and look at ways to improve your job skills so that you can earn more in the future. If you do that, at some point (after some number of years) you'll be able to afford a house, and banks will be willing to loan you money.
And do be aware that there are a lot of scams out there ("repair your credit!" "no money down") that will attempt to take what little money you do have (or to defraud someone else, such as a mortgage lender, with your assistance)
posted by WestCoaster at 1:14 PM on November 7, 2005
You're thinking about it backwards. Banks of late have been handing out creative mortgages left and right to people who are going to be way over their head as soon as the first balloon payment or rate increase hits. Thanks to the "bankruptcy reform" that just went into effect, those people are going to be hit extra hard when the numbers don't work.
But lenders aren't too concerned that they're encouraging people like you to get overextended, because they're insulated from the worse effects of your inevitable default. They sell off many loans as soon as they write them, or the fed gov't backs the loans, etc. So the loan that's high risk for you is low risk for them. So if lenders don't think you're able to handle a mortgage right now, do yourself a favor and FORGET ABOUT BUYING FOR NOW; focus instead on improving your income, building up savings, and paying your existing bills reliably. That will incidentally help with your credit score; but the real reason to do this stuff is because the ability to keep your house (and the money you've invested into it) is even more important than squeezing yourself into a way to buy it.
Yes it sucks to miss out on the record low rates. But think of the bright side: you'll be poised snap up a terrific bargain house at those poor bastards' foreclosure sales.
On preview, WestCoaster's nailed some of this already.
posted by nakedcodemonkey at 1:20 PM on November 7, 2005
But lenders aren't too concerned that they're encouraging people like you to get overextended, because they're insulated from the worse effects of your inevitable default. They sell off many loans as soon as they write them, or the fed gov't backs the loans, etc. So the loan that's high risk for you is low risk for them. So if lenders don't think you're able to handle a mortgage right now, do yourself a favor and FORGET ABOUT BUYING FOR NOW; focus instead on improving your income, building up savings, and paying your existing bills reliably. That will incidentally help with your credit score; but the real reason to do this stuff is because the ability to keep your house (and the money you've invested into it) is even more important than squeezing yourself into a way to buy it.
Yes it sucks to miss out on the record low rates. But think of the bright side: you'll be poised snap up a terrific bargain house at those poor bastards' foreclosure sales.
On preview, WestCoaster's nailed some of this already.
posted by nakedcodemonkey at 1:20 PM on November 7, 2005
I really think the idea that buying a house when rates are low is somewhat foolish. It's getting harder and harder to build new houses in reasonably attractive locations, so the supply is somewhat fixed. The low rates mean that with a given income, people can afford a more expensive house, so prices go up to match what is affordable. Basically, income/interest rate is proportional to housing price. If rates rise a lot, and you get a fixed rate mortgage now, you will be able to afford the payment in the future, but it will be difficult to sell your house, because you may owe more than it's worth, and the real value in the house is the low rate mortgage, which you can't transfer to a new house. If you get an ARM, you may get crippling payments and end up being foreclosed on. If, instead, you wait for interest rates to go up, and force house prices down, you may get a similar monthly payment to what you would have in the low interest rate case, but when rates go back down, you should see appreciation, and furthermore, you can re-fi the high rate and get a very attractive payment when the rates do come down.
posted by cameldrv at 3:57 PM on November 7, 2005
posted by cameldrv at 3:57 PM on November 7, 2005
Good point. More so since indio1919 really has no shot at getting a good rate now anyway. People with "appalling" credit get offered bad rates if they get offered any at all. Being able to apply with sterling credit and putting down cash for downpayment and points is going to make for a much better overall deal, even if average mortgage rates have gone up a couple points by then.
posted by nakedcodemonkey at 9:22 PM on November 7, 2005
posted by nakedcodemonkey at 9:22 PM on November 7, 2005
This thread is closed to new comments.
posted by godawful at 6:22 AM on November 7, 2005