Can one spouse buy a house if the other is in foreclosure?
April 13, 2012 8:03 AM Subscribe
Foreclosure and purchasing questions, special snowflake information inside.
I know you are not a lawyer, but before I go and pay a financial person, I want to know if what I am thinking if even possible:
Background:
In 2006, my boyfriend bought a one-bedroom condo in the Chicago suburbs, where we currently live. Everything was great from 2006 to 2009, when I suddenly lost my job. I was out of work for 6 months, which caused us to be late on some of our payments, but otherwise we treaded water. I took the best job I could find at the time, which was 15K below what I used to make.
Then, one month after I started my new job, my then-boyfriend-now-husband was laid off for a year, and didn't receive any umemployment (very long story, I don't want to go into it, talking about it won't change anything.)
That pretty much ruined us financially. We fell behind on our $1400 a month mortgage/home equity loan (we did an 80/20 mortgage, because we were young, and we told "that's how everyone does it" by a family friend.)
When my husband got a job again, he took a 10K hit. We worked it out with the primary mortgage company (the '80') and we are almost done paying them up for what we owed them. The home equity loan (the '20') we are 6 months back on them.
I have never been listed on the mortgage, title, or any of the bills. We did this because I had no credit whatsoever, and by adding me to the loan I would drag the interest rate up. Currently, our condo is worth about 40K less than what we paid for it, and we have no equity. It feels like we are paying $1400 a month for expensive rent because we don't feel like we will ever get what we paid for this place back.
Recently, I switched jobs, and as a by-product, got a 20k raise. We also are 3 months pregnant.
My question is this:
There are a lot of foreclosures in nicer areas, for 1/3 of what we paid for this condo. With a baby on the way, we almost feel like we still have to dig ourselves out of this mess and sell the condo before we go and buy a house. Plus his credit is already ruined due to defaulting on the home equity loan. I, however, seem to have fairly decent credit, and can qualify for a loan 3 times the prices of the foreclosed houses we are looking at.
Can I just take out a mortgage independently of my husband in the state of Illinois? I almost feel like we need to figuratively burn the condo and start over financially, because if we are going to dig ourselves out of debt, we might as well get a much nicer house our of it.
We both feel exceedingly guilty like we are somehow failures for falling behind on our bills, and not being able to be 'proper adults' and handle ourselves financially.
Is this even possible? If it were you in my shoes, what would you do?
I know you are not a lawyer, but before I go and pay a financial person, I want to know if what I am thinking if even possible:
Background:
In 2006, my boyfriend bought a one-bedroom condo in the Chicago suburbs, where we currently live. Everything was great from 2006 to 2009, when I suddenly lost my job. I was out of work for 6 months, which caused us to be late on some of our payments, but otherwise we treaded water. I took the best job I could find at the time, which was 15K below what I used to make.
Then, one month after I started my new job, my then-boyfriend-now-husband was laid off for a year, and didn't receive any umemployment (very long story, I don't want to go into it, talking about it won't change anything.)
That pretty much ruined us financially. We fell behind on our $1400 a month mortgage/home equity loan (we did an 80/20 mortgage, because we were young, and we told "that's how everyone does it" by a family friend.)
When my husband got a job again, he took a 10K hit. We worked it out with the primary mortgage company (the '80') and we are almost done paying them up for what we owed them. The home equity loan (the '20') we are 6 months back on them.
I have never been listed on the mortgage, title, or any of the bills. We did this because I had no credit whatsoever, and by adding me to the loan I would drag the interest rate up. Currently, our condo is worth about 40K less than what we paid for it, and we have no equity. It feels like we are paying $1400 a month for expensive rent because we don't feel like we will ever get what we paid for this place back.
Recently, I switched jobs, and as a by-product, got a 20k raise. We also are 3 months pregnant.
My question is this:
There are a lot of foreclosures in nicer areas, for 1/3 of what we paid for this condo. With a baby on the way, we almost feel like we still have to dig ourselves out of this mess and sell the condo before we go and buy a house. Plus his credit is already ruined due to defaulting on the home equity loan. I, however, seem to have fairly decent credit, and can qualify for a loan 3 times the prices of the foreclosed houses we are looking at.
Can I just take out a mortgage independently of my husband in the state of Illinois? I almost feel like we need to figuratively burn the condo and start over financially, because if we are going to dig ourselves out of debt, we might as well get a much nicer house our of it.
We both feel exceedingly guilty like we are somehow failures for falling behind on our bills, and not being able to be 'proper adults' and handle ourselves financially.
Is this even possible? If it were you in my shoes, what would you do?
Seconded on saeculorum's answer. You can do it, but you would have to qualify for the mortgage on your income, assets, credit score, and debt alone. His credit, income, debt, and assest wouldn't figure into the picture unless it's a joint mortgage application.
I don't if Illinois allows this, but here in Maryland, if you want your husband to be on the title, it is possible to do this while you alone are on the mortgage. I imagine this is something that can vary from state to state, so check with your mortgage company.
Consider an FHA mortgage this time instead of an 80/20. You only need 3% down and the minimum credit score is ridiculously low, something like 540. (You'll get a better interest rate if it's 650 and above, but you can still get an FHA mortgage lower than that.) Be sure to get pre-approved (as opposed to pre-qualified) before you start your home search. bankrate.com is a great resource for finding a mortgage lender.
A caveat about foreclosures: A lot of people don't take too kindly to banks repossessing their homes and selling them. They get this attitude of "If I can't have my house, then no one else can" and they go about destroying the house. This may be in noticeable ways (for example, with a foreclosure that just sold down the street from me, the new owners complained that the carpets were destroyed and they had to redo every floor in the house) or it may be in more subtle ways (such as shutting off the water to the house and pouring wet cement down the sink and toilet drains). Either would come to light during a home inspection. But you need to figure forclosure-type repairs into your "how much house can I afford?" calculations.
Another thing to consider is property taxes. Keep in mind that if you buy a foreclosure for $300k, the house might actually be worth $600k, and that will be what the county/town/taxing authority has on record it will be worth, and that will translate to higher property taxes than if you bought a $300k house in an arms-length sale. You can look the taxes up on most MLS listings, and the mortgage company will calculate (usually inadequate) escrow payments, so you don't have to worry so much about that, but it WILL figure into your monthly mortgage payment.
Foreclosures also take longer to clear than arms-length sales. In an arms-length sale it is typically about 3 months from offer to closing, whereas foreclosures can take 18 months or more. So let's say you put your current house on the market when you have an accepted offer, then someone buys your house in an arms-length sale... Unless you negotiate with the buyer to rent your (current) house until you can go to closing on your foreclosure, you'll have to find a place to live in the interim.
Best of luck with your finances and your home search.
posted by tckma at 11:17 AM on April 13, 2012 [1 favorite]
I don't if Illinois allows this, but here in Maryland, if you want your husband to be on the title, it is possible to do this while you alone are on the mortgage. I imagine this is something that can vary from state to state, so check with your mortgage company.
Consider an FHA mortgage this time instead of an 80/20. You only need 3% down and the minimum credit score is ridiculously low, something like 540. (You'll get a better interest rate if it's 650 and above, but you can still get an FHA mortgage lower than that.) Be sure to get pre-approved (as opposed to pre-qualified) before you start your home search. bankrate.com is a great resource for finding a mortgage lender.
A caveat about foreclosures: A lot of people don't take too kindly to banks repossessing their homes and selling them. They get this attitude of "If I can't have my house, then no one else can" and they go about destroying the house. This may be in noticeable ways (for example, with a foreclosure that just sold down the street from me, the new owners complained that the carpets were destroyed and they had to redo every floor in the house) or it may be in more subtle ways (such as shutting off the water to the house and pouring wet cement down the sink and toilet drains). Either would come to light during a home inspection. But you need to figure forclosure-type repairs into your "how much house can I afford?" calculations.
Another thing to consider is property taxes. Keep in mind that if you buy a foreclosure for $300k, the house might actually be worth $600k, and that will be what the county/town/taxing authority has on record it will be worth, and that will translate to higher property taxes than if you bought a $300k house in an arms-length sale. You can look the taxes up on most MLS listings, and the mortgage company will calculate (usually inadequate) escrow payments, so you don't have to worry so much about that, but it WILL figure into your monthly mortgage payment.
Foreclosures also take longer to clear than arms-length sales. In an arms-length sale it is typically about 3 months from offer to closing, whereas foreclosures can take 18 months or more. So let's say you put your current house on the market when you have an accepted offer, then someone buys your house in an arms-length sale... Unless you negotiate with the buyer to rent your (current) house until you can go to closing on your foreclosure, you'll have to find a place to live in the interim.
Best of luck with your finances and your home search.
posted by tckma at 11:17 AM on April 13, 2012 [1 favorite]
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I'm not going to say what you should do, but there's no reason to feel guilty about this. The bank priced the chance of your husband not paying the mortgage into the cost of the mortgage - that's what the interest payments and fees are. Corporations default on mortgages and agreements all the time as business decisions. There's no reason you should be any more generous to them.
posted by saeculorum at 8:09 AM on April 13, 2012 [1 favorite]