Getting Discouraged on future mortgage possibilities (SL debt and Chapt 7)

[Anonymous]

So lately, I've had a few friends that have hit the homeownership milestone, and it got me starting to think about my own future.  After I received my Chapt 7 discharge 11/2015, one of the things I was really looking forward to was the potential to get a home and get out of this rent trap. Well the more and more I research my particualr situation, the more and more I get discouraged. My two biggest hurdles are a HUGE student loan debt that is currently on REPAY, meaning i'm not even chipping away at the principle, but just interest, and the other is a car loan that is a big chunk of my DTI. My goal to get myself in the best possible shape to make sure that I can put everything into action once I hit the 4 year mark after my discharge (Dec 2019) but based on my limited mortgage knowledge and particular data points, I just don't see how it's going to be possible without a huge spike in my income, a magic sponsor that pays off my SL debt, or shoot, winning the lottery  . I've used Shane's template to list my data points below. Any recommendations or realities would be appreciated.

1. Mortgage Credit Scores:

• What are your fico MORTGAGE credit scores for each mortgage applicant? As of 6/27/16 ( my last paid myfico 3B) Eq-622 TU- 673 Ex-657.

1. Credit Negatives:If you have any, what negatives are on your credit reports. For each negative, please provide: Ive missed no payments on anything since the BK. I currently have a lot of inq due to car loan and rebuilding (TU-18 Ex-16 Eq-26)

• Type: Chapter 7 discharged 11/9/15, report shows 9 derogs, but all are dated the month of the discharge and are tied to the CCs I had in the BK
• Status:  Current
• DOFD:  11/2015
• Most Recent:  11/2015 Credit Cards/store cards

1. Gross Income.  Gross income (before witholdings, medical/dental, 401k contributions), per your IRS tax returns, is what is important when qualifying, not net income. 

• As of 2015 taxes, 49,000, but I recently received a promotion, so I am now at 58k. expect to be at 63K in 2019

1. Source of income.  Where is the income coming from? List each source.

• Employment, I’m employed full time,  Income is hourly. Yearly bonus aswell

1. Monthly debt payments. 

• Credit Cards- by 2019, i expect to have no more than $50-$100 in CC minimum payments
• Visa1: $3,000/$16,100- Min- $50
• Disc: $700/$1,500- Min $35 (will be paid off 1/2017)
• Amazon: $500/$1,400- Min $25
• Car Pmt: $600/mo – I intend to refinance next year to get lower rate, possibly put payment at $550.
• Student loans:
• #1 $162,500 currently on REPAY- IBR, current monthly pmt is $197. Current pmt will NOT amortize full loan, forgiveness is expected at end of repayment term (25 yrs). I’ve been on the plan for 1 year, no missed payments (autopay). Standard Repayment is set at $1,750/mo.
• #2 $4,500- this was a private student loan that I am paying $62/mo on. Current expected loan end is 2023 but will probably pay off earlier.

1. Employment (for those who are employed). 

• Type of employment: W-2’d with Major Telecom Company. Hourly pay with ability to get OT
• How long have you been on the job: 8 Years
• How long have you been in the industry/career field.: 10 Years 

1. Assets/Reserves. This is to determine how much you could potentially have as a down payment and also as reserves to help qualify (for example if your debt to income ratio is high this could help qualify you anyway).

• Savings- as of current I have about $1,000 as my emergency fund. I have budgeted in $300 savings/month through December 2019 to get my reserves to $10k
• Checking I have 3 checking accounts, 2 CUs 1 online, no significant amounts, just a landing pad for my check
• 401k – Currently saving at 6% to get company match, I intend to use a loan to help supplement DP & closing
• IRA - $5000

1. Location:This is to determine govt guaranteed loan limits, what special programs might be available for you, how much property taxes & homeowners insurance will likely be, amongst other items.

• State GA
• County(s) Fulton, Gwinnett, DeKalb, Cobb
• City or zip(s) Sandy Spring, Norcross, Roswell, Dunwoody

1. Property Description:

• My goal is to get a townhome or single family

1. Property Value. 

• Purchase transaction: what is the home price range you are looking in 130-160k

1. Occupancy. 

• Primary residence; This would be my primary residence. Have 1 parent also living in home, they receive SSI & Pension

1. Transaction Type.  This would be my first home purchase

Misc: I have no family that would be able to be a cosigner, nor any spousal incomeor potential gift money. most areas i'd be looking in would have HOAs fees

[Anonymous]

If you're at all serious about buying a home, Get rid of the car immediately and buy something in the 5-10k range w/ low mileage, a kia/nissan sedan or something. You'll save on payment and insurance, if you don't drive a lot, consider a pay-per-mile insurance policy if that is available in your state. Me and my wife share a car and The Note & insurance alltogether is $260, our income is 140k, so you might want to ask yourself why you're paying 3x more on a much smaller budget.

Your student debt is... terrifying.  But you seem to have a plan for that on IBR.

Your bankruptcy is.. obviously, too recent. But in just 1 year you will be eligible for FHA w/  the bankruptcy 2 years old. 

What do you spend on food? A good goal for a monthly grocery budget is 120$-$150 including your work lunches, you might be surprised what you learn and how much healthier your diet gets in pursuing that goal, learn to cook your own food, bring yourself a lunch to work, Don't eat out. It's not just about sacrifice now, you're learning long term habits that will save you money for the rest of your life, as well as help you better appreciate when you do spend some extra $$ on a nice meal someone else cooked.

Clothes? Goodwill. No, I'm not joking. You wouldn't know it from looking at me, I dress well, but all of my clothes are from Goodwill, shoes too. I spend about 3-4$ for a pair of pants or a nice polo or button up on average, and 10-15$ for a nice almost new pair of nikes. Banana republic, doc martens, calvin klein, you can find it all at goodwill, sometimes never worn.

Start paying down the credit cards. With some slight lifestyle modifications I suggested here, you could pay them off completely in 3 or 4 months.

Keep your retirement funds going to the 401k primarily since you can take a loan from it for the DP ( as you mentioned )

If you're not willing to get rid of the car I would say you're not willing to make the hard decisions necessary to own a home. A car is just a car, it gets you from 1 place to another, a bicycle will do the same thing over short distances. Start focusing on the little things, set a budget for food and clothing and learn to stick to it. 

Oh, CANCEL CABLE if you have it. ( it's a rip off ), Try Netflix and Hulu, instead.

If you get rid of the car and get aggressive in paying down the credit cards, you can show a lender you've made responsible lifestyle changes and are on your way to financial responsibility. As it is now this post is kind of a joke. you're 1 year out of bankruptcy, driving a very expensive car, and already looking to leverage yourself more. Not a good picture.

If you do everything right, you may well be able to buy a home in 1-2 years. It's really up to you. Despite your bankruptcy your credit scores are not that low, surprisingly. What you need to do is pay down debt and start saving as much DP as possible to show lenders that despite your debt, you are able to budget and save money. Larger DP is also going to make your mortgage payment lower, so you're doing it for yourself as much as anything, keep that in mind.

[Anonymous]

So I think that the previous poster made some good points although calling your post a joke was not nice. You are overreaching a bit as far as stretching your budget.

Some good hard numbers are Debt to Income ratios that lenders will hold you too. Our loan is USDA, they have a debt to income ratio of 29/41 (lower than some programs). 29 is housing debt and 41 is total debt. Take a look at where your numbers are and get them there. You may have to make the hard choices mentioned above if you really want to own.

A savings plan is a good idea but at this point paying off your debts with that money is a better idea. No loan with that much debt.

HOA's are really going to hurt your ability to borrow unless the fee is super low. Watch taxes and insurance as well, it may make more sense to commute a bit and get into a lower tax area.

Hang in there. That $600 a month car payment is a ouch on your income but I am not sure how to get out of it since everybody says just get rid of the car and it never seems quite that easy.

[Anonymous]

Well, Fergy3, I guess you decided to tackle the “realites” part of my question only. I thank you for your information.

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@Anonymous wrote:

If you're at all serious about buying a home, Get rid of the car immediately and buy something in the 5-10k range w/ low mileage, a kia/nissan sedan or something. You'll save on payment and insurance, if you don't drive a lot, consider a pay-per-mile insurance policy if that is available in your state. Me and my wife share a car and The Note & insurance alltogether is $260, our income is 140k, so you might want to ask yourself why you're paying 3x more on a much smaller budget.

 While I absolutely agree the car pmt is high, the car situation is not as simple as you’d like to make it. I drive A LOT; I live in the ATL metro area where distances can be quite far to get to point A to B, not having a car is not an option. I shuttle my parent to appointments quite often so a pay-per-mile plan is not a reality, plus Insurance rates are much higher due to accident rates here. I pay about $150/mo, but even my old 8yo SUV I used to have was over $100 for insurance. Sharing a car is not a possibility. As of now, I'm slightly upside down, but I should have a tiny bit of equity a year from now. That's why i was going to refinance at that point, but i would be able to trade it w/o penalty then.(Yes, I have considered how an additional year of depreciation will affect the value)

Your student debt is... terrifying.  But you seem to have a plan for that on IBR.

 Yes, my student loan debt is regrettable. I’ve got the IBR setup and will just plug along at it.

Your bankruptcy is.. obviously, too recent. But in just 1 year you will be eligible for FHA w/  the bankruptcy 2 years old. 

 One of the main reasons for my post is that with the new FHA rules, and my IBR, they will use 1% of my total balance to calculate the DTI, which at this point is $1,600. My rent and bills for everything are just barely that amount. If these rules stay this way, from my understanding, FHA is not an option for me.

What do you spend on food? A good goal for a monthly grocery budget is 120$-$150 including your work lunches, you might be surprised what you learn and how much healthier your diet gets in pursuing that goal, learn to cook your own food, bring yourself a lunch to work, Don't eat out. It's not just about sacrifice now, you're learning long term habits that will save you money for the rest of your life, as well as help you better appreciate when you do spend some extra $$ on a nice meal someone else cooked.

Clothes? Goodwill. No, I'm not joking. You wouldn't know it from looking at me, I dress well, but all of my clothes are from Goodwill, shoes too. I spend about 3-4$ for a pair of pants or a nice polo or button up on average, and 10-15$ for a nice almost new pair of nikes. Banana republic, doc martens, calvin klein, you can find it all at goodwill, sometimes never worn.

 My food and clothing budget is well within your target. Please don’t assume that because I filed BK before or have some CC debt now, it’s because I eat out all the time or buy clothes un-necessarily. I'm very familiar with Goodwill and secondhand shopping.

Start paying down the credit cards. With some slight lifestyle modifications I suggested here, you could pay them off completely in 3 or 4 months.

 Agreed

Keep your retirement funds going to the 401k primarily since you can take a loan from it for the DP ( as you mentioned )

 Agreed

If you're not willing to get rid of the car I would say you're not willing to make the hard decisions necessary to own a home. A car is just a car, it gets you from 1 place to another, a bicycle will do the same thing over short distances. Start focusing on the little things, set a budget for food and clothing and learn to stick to it. 

 See above.

Oh, CANCEL CABLE if you have it. ( it's a rip off ), Try Netflix and Hulu, instead.

 Cable is included as an ammenity in my rent, it can’t be modified.

If you get rid of the car and get aggressive in paying down the credit cards, you can show a lender you've made responsible lifestyle changes and are on your way to financial responsibility. As it is now this post is kind of a joke. you're 1 year out of bankruptcy, driving a very expensive car, and already looking to leverage yourself more. Not a good picture.

 My goal as I mentioned in my original post was to buy in about 3-4 years, and I’m trying to put myself in the best position to make that happen at that time.  I think it’s a bit thick of you to call this post a joke; anyone that’s actively seeking advice with an open mind shouldn’t be punished for assumptions about you think I will/won’t do. While I truly do aim to achieve home ownership, I am in no rush to make this happen in the next 1-2 years because I fully understand that a house/mortgage/taxes/upkeep/etc are huge responsibilities, and if time is what is needed to help my goal, then I’m here for it.

If you do everything right, you may well be able to buy a home in 1-2 years. It's really up to you. Despite your bankruptcy your credit scores are not that low, surprisingly. What you need to do is pay down debt and start saving as much DP as possible to show lenders that despite your debt, you are able to budget and save money. Larger DP is also going to make your mortgage payment lower, so you're doing it for yourself as much as anything, keep that in mind.

Bankruptcy doesn't automatically mean trash scores. I've worked very hard this year to rebuild. Plus, the good folks over in the Bankrutpcy board have helped tremendously to make my first year past discharge an effective one.

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[Anonymous]

Thanks firemediii for your info.

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@Anonymous wrote:
So I think that the previous poster made some good points although calling your post a joke was not nice. You are overreaching a bit as far as stretching your budget.

Some good hard numbers are Debt to Income ratios that lenders will hold you too. Our loan is USDA, they have a debt to income ratio of 29/41 (lower than some programs). 29 is housing debt and 41 is total debt. Take a look at where your numbers are and get them there. You may have to make the hard choices mentioned above if you really want to own.

A savings plan is a good idea but at this point paying off your debts with that money is a better idea. No loan with that much debt.

I usually get my bonus around tax time, so i may put the two gether and pay off everything. unfortunatly, the student loan isn't going anywhere. I feel like a  lump payment to it is really just waisted money, becuase if I stay on the REPAY plan for the full time, the remainder is forgiven (however the tax burden in the end is a travesty in it's own right)

HOA's are really going to hurt your ability to borrow unless the fee is super low. Watch taxes and insurance as well, it may make more sense to commute a bit and get into a lower tax area.

As i've considered where i'd potentially want to buy a house, i've considered the commute. That doesn't bother me as much as i wouldn't be close for emergencies and such if i nneeded to get home quickly.

Hang in there. That $600 a month car payment is a ouch on your income but I am not sure how to get out of it since everybody says just get rid of the car and it never seems quite that easy.

Agreed, and Thanks! As I mentioned above, next year around this time, I estimate I'll be right side up in the loan, so i can trade the car for something more cost effective without having to roll the difference in. I may look into refininacing before that point to lower the interest rate in the mean time.

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[Anonymous]

Get rid of the car. $600/mo when you're making $50k (with +$180k in student loans) is ridiculous. I'm not trying to be mean, just honest. What's the insurance and maintence on that? I live outside Charlotte. I drive 36 miles, round trip to and from work. I put serious miles on a car. I pay $211/mon on a 2012 Terrain and maintain it (which will save you money in the long run.) Trade the car in, do a private sell. But as soon as you can, get rid of that car.

Cable? It's 2016...Get rid of it. Get an OTA and a Roku/FireStick if you want to watch TV. You'll save ton's of money over time. 

Student Loan: Is it federal or private? If it's Federal - pay the bare minimum. There's no incentive to pay it off early and it'll be discharged in 20 yrs (25 yrs if it's Grad School)

[Anonymous]

The only thing I have to add yes, dump that car! I live in the Los Angeles area, probably one of the few places with traffic and insurance as high as Atlanta. I drive a gorgeous Audi that I bought used for $8k. You can get a great car for far, far less.

[Anonymous]

Okay, so I think we can all agree that I need to change the car!

It isn't really feasable at the moment to change the car. I don't currently have enough in savings to outright purchase another car and I need to let a lot of those inq age off, i can't say that i'd even be able to qualify for a new loan with a decent rate with my inq + young bk. I'm upside down, but depreciation and payments should make me even around this time next year. A year from now, I can trade the car in and get something a lot cheaper and possibly with a shorter term so that it isn't calculated in my DTI when I potentially start the mortgage process.

I guess what i'm hoping to get some (better) clarity on is what, if any, types of mortgage options or programs would be best when the time comes so that I can research and be prepared (With the car removed from the equiation). If my BK has taught me anything is that failing to make a plan only leads to bigger issues, so i'm giving myself 3 years lead time to figure this all out. I'm not trying to get ahead of myself or get a house next week. You all have rightly pointed out the necessity of making sure that my budget and finances are in check before I even try to apply.

Thx!

[Anonymous]

Your tone went from optimistic in seeking feedback to the profile you presented to somewhat of a discouraged tone. I've read the responses and I say keep plugging along. For some it may be easy to "get rid" of the car. Obviously for you that is not an option. If it were I'm certain you would have done so by now. 

I, too, live in Atlanta. I closed on my home 11/15/16. Just this morning. Although I've never filed for bankruptcy, in my past, I probably should have because I may have gotten here sooner. Like you I had car payments higher than I should have based on my earning. I still have student loans I am paying off. As I have alluded to in a previous post where I thanked those on this site for providing great info, I lived in "C" and "D" level apartments because that's all my credit would allow. It was not an overnight journey, and to be honest I had given up knowing my credit score. I had been prequalified twice previously, but with a score on the lower end of the model, and high DTI I would have only qualified for something that would have been similar to that "C" level apartment. Fast forward to toady I have a middle mortgage score of 783 and have a 3.5% rate on a $200000 mortgage. When I went through underwriting I did not have to write letters. In fact I went from application to clear to close in 10 days. The point in all this is to let you know it is possible. I've never sacrificed things I wanted and enjoyed just to buy a house. What I did was pay down and paid off the debt. Never missed in payment on anything in 10 years. Worked for the same company for 8 years. During that time earnings increased by $42k. I bought this house on my own. My income and credentials afforded this opportunity. My advice is work down what you have. When paying down debt there will be plenty of sacrifices, so keep some things that make you happy. It will make the time go by faster, and you'll be much happier as you do it. Best wishes towards your success. My only advice is pay down the debt on time and increase decrease your utilization. That will show a lender you're serious. I don't think a lender will care if you traded in your car for a bike. 

[Anonymous]

I am also going to say that I disagree with refinancing the car. I have yet to find a situation where it helps me because in exchange for the 50.00 less a month car payment they will tack on at least 12 more months to your loan. So 12 x 550 plus whatever you have left of your loan or save 50 x 36 for instance. Your right that the student loan is just going to have to sit and do its thing but you could throw a extra 50.00 month at this car loan and pay it a few days earlier than scheduled and it will go more toward principal and less toward interest.