Real Estate industry....Advice for Securing A Mortgage with Bad Credit.....kinda long

A car repo on the books and you're in law school? Your biggest problem is a lack of patience; thirty-year mortgages weren't made for cats in your position.

 

Imaginary "on pace" income with your parents' and relatives' help versus real fiscal failures that you accomplished on your own. And now you want to "treat yourself" for cobbling together a half-year's worth of income. Since you lack the humility to live cheaply and in the suburbs or buy a condo, looks like you're trying to drop at least $30k, but probably $50k, of your "on pace" income for a down payment. I think I may know your position better than you do.

 

I agree with Pouhe. You're not an idiot but you are being impatient. You say you're blowing money on rent but how much will you actually be blowing in the 6-12 months it takes for your credit to get in the 650 range and your income to be stable for a longer period of time. Just take your time. Wait a year and you won't have to worry about any of this.

 

He doesn't want financial advice. He wants a means to an end.

Btw, what's wrong with just asking a mortgage lender whether someone in your situation can get approved? What's the worst that can happen? That he say no? I

 

I'm not saying you can't afford. What I'm saying is that 6-12 months more won't be a big deal. You won't have saved that much for all the trouble you're going through now. Wait a bit and you'll be able to get a house without much hassle.

$250k condo means:

$50k down payment
$8k closings costs
$1000/month mortgage
$625/month in taxes
$500/month in condo fees
$200/month in insurance
-$400/month in tax savings

So you'll be ahead $2500-1925=$525 a month, assuming I didn't forget any big costs. Over 6-12 months that's $3-6k. Not a small amount but it's not like you'll go cry over it. Just bide your time.

 

The tax benefits are overstated. The housing bubble is propped up by Helicopter Ben with easy money and record low interest rates below 3.5%. What's going to happen to housing values when interest rates rise like they did in the mid-2000s?

A housing bottom had been predicted every year since 2006.. Housing still has another 20-30% to drop to reach pre-bubble inflation adjusted values. It's all smoke and mirrors now. Economy is slowing down. There is record high unemployment. China is about to crash. If China crashes, who will buy US debt? Europe? Japan?

Housing is still dropping, if you look at the S&P Case-Shiller index. I am not having any of that Kool-Aid from Helicopter Ben.


http://www.ritholtz.com/blog/2012/05/the-housing-bottom-is-here/

 

Wait, you live in Houston? How are you paying $2400 in rent?

It's only the mortgage interest you can deduct, not the entire mortgage payment. For the first payment, that would be about 70% of your mortgage or $700. Obviously each year it would decrease. This also means you are not building up your equity very much the first several years of your mortgage.

I don't think condo fees are tax deductible.

I don't know what this $9,090 deduction is for annual depreciation, so I'll ignore that in my calculations for now.

Best case is annually $9,840 for MID + $7,500 for property taxes = $17,340

Also subtract the standard deduction ($5,950), which you would get anyway and your total deductible savings amount is $11,400.

If you're making six figures you'd be in the 28% tax bracket I think...so the actual savings you would see back is only $3,192, which comes out to $266 savings/month.

Anyway, how much do you have for a down payment. You would need 20% for a bank to even let you in the door nowadays.

 

All I've seen so far is you flaunting your income and success.

First: If you can reasonable afford to pay off your bad credit debt, then do that first and immediately. And yes, try to work a deal to remove any derogatory information on your credit. Find out who owns the debt first; Does the collection agency or capital one? If Cap. one doesn't own it anymore, you're screwed. Anyways, get some professional help on this one.

Second: Get your debt to income level down as much as you can.

Third: There is a saying; The most expensive advice is free advice. You're getting free advice here. Gather up everything about you; tax returns, current credit reports, ect... and go find a couple loan officers and ask them. I was in a similar position as you and I simply went to my local bank and spent an hour talking to the loan officer and they helped me much much more than I ever could researching all of the misinformation on the internet.

 

I agree as well that you are being impatient. It takes years to repair credit and for good reason. You have to show over a LONG period of time that you are responsible. While I don't entirely believe that the credit system is legit or weighted properly, it is the system in which you have to play.

I don't believe that any bank will approve you for a mortgage with a sub 600 credit score. If for some reason they do it will be at an outrageous interest rate and with the caveat that they will break you knee caps if you default.

I know where you are comng from because I had **** credit at one point. I finally turned it around when I understood that I had to think differently about money and couldn't have instant gratification when it came to the things that I wanted. I don't think that you are there yet because you just want someone to validate your fantasy land wishes.

 

You can always go to a reputable lender and apply for the loan. If you get rejected, they will tell you why and what you need to do to get the loan. Mortgage companies do make money by taking on home loans so they do want business. While it may be a bit more difficult to get a loan today than it was a few years ago, it isn't an impossible task.

If you can comfortably afford $2400 a month in rent, you should be able to afford a reasonable house.

Your deductible items are: mortgage interest and property taxes. You may also get to deduct (one time) points you pay on your loan. Condo/homeowner fees are not deductible. Depreciation means nothing with respect to your income taxes when you are living in a house. There is not even a line item for it.

I don't know you so I can't tell you if you are being impatient, reckless or smart in desiring to do this.

 

Dealing with bad credit is like doing prison time for a crime. It's a punishment so I would recommend taking that "punishment" in stride and continue to improve your credit until that day you are a free man (i.e. the day those derogatory items fall off your reports or you get them removed).

Even if you do get a loan, you are going to get hosed on the interest rate and will be kicking yourself years for now for paying 9% interest when you could have had 4-5% if you had waited.

 

Why the hell are you paying $2400 a month in rent?

 

You are correct that both the mortgage interest and property tax is deductible. I estimated $8k for mortgage interest and $7k for property tax. But remember it is a deduction, not a credit. So you can't subtract is directly from your tax. It just lowers your taxable income, which means you'll save roughly 30% of whatever that deduction is. In this case it's about $4500 yearly so I gave you $400 a month.

 

congrats on getting back on your feet. but i feel you're on the road to overextending yourself again. renting is not throwing money away, but paying $2400 to rent in Houston is. you can find a nice place for half as much. a house can wait another year.