Running through all the options

[AtmyOffice]

We've been leasing this house since Jan. 2009. The house was foreclosed in July 2010. We're currently doing the "dance" with the lawyers for GMAC regarding letting us remain as tenants for the rest of our lease (until May 2011).

I have a LOT better credit than my husband. My mid score is 630. My DTI is about 40%. I have some lates (30s and 60s) that are over a year old and I have been in a debt management plan for over a year now - making great progress. No collections, no judgements. I am 6 months pregnant. I've been in my job for almost 5 years and make about 55K a year. I have 7K I can lend myself from my 401K for a home downpayment and about 3K extra in savings. I have been planning to buy in 2011 by myself - leaving husband out of app.

We're resigned to stay renting until after May 2011 if needed.

My dad just suggested we send a letter to GMAC - the bank that owns the house we live in - and offer them $185,000 for the house with a token 5K of downpayment (a little under 3%) if they extend the new mortgage to us. He said not to prequalify, or do anything official, just throw them an offer and see if they're willing to work with us.

Do you think this is a good idea?

I am scared, and have been scared of homeownership, but I reckon there have to be people out there in worst shape than us. If the bank accepted under these terms, our monthly payment would be less than our rent is now and we would be able to swing it if one of us lost their jobs.

[AtmyOffice]

Bump.

[AtmyOffice]

Bump?

[IOBA]

Making an offer to GMAC is worth the effort.  You have already been talking to them about staying in the house.

If it's NOT the house you want, then consider asking them to do a "lease" with you until May 2011.

if it's a house you can live with until your CR is where you want it, go for it.  I would, discreetly, try to find out how much is owed on the current mortgage.  Maybe ask GMAC if you can assume the current mortgage?

Let us know!

[Anonymous]

They will not likely entertain any offers until you are preapproved.  Also, it would be risky submitting an offer in the way you are suggesting unless you are a qualified real estate agent as there are many issues and contingencies that need to be addressed in the offer or you could end up in alot of trouble if the deal falls through.  Lastly, you said you are currently at 40% DTI.  IS that with the new mortgage figured in?  That seems unlikley as the mortgage alone would be close to 40% DTi.  This will be a tough loan to sell as DTI is going to be an issue no matter what.  Even if you had zero debt, the mortgage is likely to be over 31% DTI which is what most lenders want to see for mortgage debt.  With minimal down payment, no reserves to speak of, debt management, and lates in the past 24 months it will be a tough sell.  You are at 630 midscore which helps a bit, but it is not a magic number and alot of banks are pushing for 640 to 660 for minimum midscore for FHA loans.

So, get preapproved and get an agent (contrary to popular belief, you do not save any money by not having an agent, if you do not have one then the sellerx agent just gets the full commission instead of splitting it with the buyers agent)

[AtmyOffice]

Thanks for the response!

Because I have a signed lease that predates the default, they have to let me stay until the end of said lease (Protecting Tenants from Foreclosure Act of 2009).

I like the house, it's around the corner from my parents and it has the space we need. Would we like something bigger? Sure, but we can't afford it and we are realistic in terms of how far our money will take us. We would be okay staying here 10 years.

The loan on the house was 245,000. The amount left when they defaulted was 222,000. Their montly mortgage was around 2045 a month - we pay 1395 in rent and are willing to pay up to 1600 to own it.

Public records show that before this purchase - in 2004 - the house had been sold in 2002 for 229,000 and it was first sold (when built) for 177,000 in 1999.

We had an inspection made - because we wanted to be sure it is a good purchase - and the cost to repair came at around 6K of mostly cosmetic stuff and regular maintenance that has been neglected since the owners fell into hardship. I plan on including the repair estimates with my offer letter to show we have good intention. I just want to know they are not going to laugh at me for showing an offer letter and an inspection report and no prequal for mortgage.

[AtmyOffice]

Hi Mickie,

I'm not opposed to having an agent do the offer for me.

But if the last year and a half has shown me something, its that banks have NO methods in place for handling most REO operations when a tenant is involved. With the change in law, I have been talking to the lawyer in charge of the foreclosure about making rent payments, within hours of having bank officers trying to break into the house. In the same day I will receive a letter saying I have to leave the premises, and a letter saying I am the tenant and allowed to stay.  I have a lawyer on speed dial in case they decide to lock me out of the house (which is illegal because of my signed valid lease).

I know the theory is very black and white, but the reality has a million shades of gray.

[Anonymous]

What you have to understand though is that your rental situation and your thought of purchasing the property are 2 entirely separate issues that would be handled by 2 entirely different sets of people.  For example, you can not just offer to the bank.  You have to offer through their real estate agent.  If they have not officially put an agent on the property, then it is not officially for sale yet in their system, and any offer would probably be ignored as the people who would need to have the file to make decisions, probably do not have the file in their system yet.  Each bank is different, and if it is a small local bank that owns it you may have a chance just approaching the bank directly.  But, all of the big banks have very specifics procedures that they follow process wise when putting a property up for sale.  In any of these cases, they are not likely to take any offer seriously that is not pre-approved.  Even if they can expedite getting an agent for the home and setting it up for sale to you, this will be the first thing that they ask for.  Also, unless you qualify for VA or USDA loans, the minimum you could put down would be FHA 3.5% loan.  5K would not work.  The minimum would be about 6500 down and you would probably need at least a couple thousand more for some closing costs.  You might get some of those paid, but most people will not pay more than 3% towards closing now that FHA is in the process of making that a rule.  So assuming closing costs of around 10K (it could be lower or higher depending upon the area, prepaids, etc...)  and they pay 3%.  That would put you owing about 4500 in closing costs and 6500 in down payment for a total of about 11K at signing.  Of course, you could get lucky and the bank agree to pay up to 6% closing costs (again not as likely as it used to be, but possible), and the closing costs could vary quite a bit.  I would say anywhere from 7K upwards of 12K depending on alot of factors would be in the ballpark.

So, to take your offer seriously, you would likely need an FHA approval (assuming you can not go USDA or VA), earnest money deposit, and possible be required to submit for a pre-approval through the purchasing bank as well (they do this to weed out people who are not that serious or who may not be able to get qualified and hence waste their time).

Also, you would need to be able to address the DTI issues.  If the 40% DTI you mentioned counted the 1600 mortgage or so that you are looking for, then you are probably in the ballpark even if the front end DTI is a notch or two high.  It would be tight and there is no guarantee you will get approved, but it is close enough to make trying worth the effort.  If that is just debt that is in your name already, it is almost certainly an impossible loan unless you have the ability to pay down alot of debt prior to buying. 

In any case, good luck.