mortgage w/ no job & large downpayment? (insurance, loan, fixed rate)

[gilgongo]

I'm wondering if my husband & I would qualify for a mortgage under these circumstances:

We'd like to buy a $300k home with $100k down (30%). We would have another $100k in the bank.
Neither of us are working. We've been filming a independent movie for the past year and a half and living on an inheritance while we do this. We currently have no consistent income. (does our inheritance count as income?)

Our credit scores aren't great but aren't terrible. But there are definite problems in our credit history. Mine is 745 from Experian and 642 from Equifax.
I'm not sure what his is currently, but it's quite a bit more than mine. Definitely over 750.

He did a short sale a little over 2 years ago (the mortgage was in his name). I had a major health issue 2 1/2 years ago, and we went into major debt via credit cards. I did two charge-offs 1 year ago, and he did 1 charge-off 1 year ago. We've been fully debt-free for 1 year now, and our credit finally seems to be rising again.

Is there any way would be approved for a mortgage? Thanks for your time!

[SmartMoney]

You not only must show you have the income to support the mortgage, you need to make a case for why you deserve a second chance.

Unless your husband is a veteran, your wait is a minimum of 3 years from the date the shortsale occurred. (And even then, veterans have some additional checks before getting a mortgage). As for the charge-offs, most lenders require they be in satisfied status for a minimum of 1 year. But with the prior short sale, you are going to be held to a higher standard. In our current environment, I wold not expect to obtain a mortgage until you can show you can maintain accounts (use and pay on time) for a minimum of 2 years. Normally, it would be 1 year without the short sale.

You say you have been debt free now for over a year - do you have any credit cards you can use? If your answer is no, you need to go open a secured credit account (where your pledged savings is your cedit limit). Then you need to show you can use that account and handle it responsibily. As for the income, this time around you will have to show you have tax returns to support the mortgage.

It's in the regulations we have to show the borrower has the ability to pay back a mortgage. Most investors and banks use standard debt to income ratios as a means of proof the buyer can pay back borrowed funds. Today's sub prime (high rates and high down payments) no longer mean bad credit and believe what you say, they still have their methods to show auditors you can pay back the loan.

You need to make sure the reason you don't have debt isn't because you can't get credit, and then, you have to prove you can pay back debt without being late. Then, be prepared to document you can pay your rent and utilities, on time, too. It's a long road, but if you start now, it will be here before you know it.

[davecj]

Are you in an area where 300k is the median? It seems like you could comfortably pay cash for a 100-150k home and skip the mortgage and credit issues altogether.

[gilgongo]

I'm in an area where 300K is actually extremely low for housing (i.e. we can maybe find a fixer-upper for that price). I couldn't even buy a condo for $150 (or even $200) where I am, unfortunately.

After we paid off our credit cards, we didn't try to get another credit card. Now I'm getting offers from various places, and I'm thinking about applying just to help raise my credit score. But I've heard differing opinions on whether that raises or lowers your score.

Neither of us have ever been late paying rent or utilities. Our rent is currently $1700/mo for a tiny TINY place. If we buy a $300k house with $100k down at 4.5%, our mortgage (with insurance & taxes) would be $1450. That's one of the reasons we want to buy.

Also, it looks like our movie is going to get a sales & distribution deal, so some money will hopefully be coming in from that. Will that make a difference for mortgage people? And, will they consider our inheritance as income from last year? i.e. would that count as "showing income?"

Are there any other options for us besides just waiting it out? While we're waiting, our down payment is being whittled away by our rent. I was wondering if we could pay a higher interest rate or something like that.

[chet everett]

Depending on how your inheiritance is structured it might be possible to be used as income for purposes of getting a loan, but even in the best case this is NOT the kind of situation that most lenders are going to make easy.

The problem is that even the "ideal" situation where the inheirentance is in a fully managed trust that is invested in fixed rate bonds or annuities the lender has to do a LOT of extra work to evaluate the reliability of that income stream. Then there is a whole sub-issue of why the money was left in such a high structured state -- if your benefactors had more faith in your ability to handle money they probably would not have bothered with the overhead of a trust... Given that you and your husband have dug a hole before it sounds like you are not good at managing money.

If you have a decent relationship with the firm that is managing the trust that might be an excellent starting point -- in theory if they use the money in the inheiritance to guarantee a mortage and they have "both ends" of the deal their exposure to risk falls way way down... They are essentially just converting some of the funds in the trust from the fixed income bonds / annuity into a real estate holding, of course this assumes that the nut of the trust is at least as big as the value of the house. If the house is far more expensive than the principal in the trust this probably won't fly.

Don't play around with any lender that claims that they can get you what you want at a higher interest rate. That is a fool's gambit. 9 times out of 10 that is a scam to fleece the unspohisticated. The various players in the secondary market (which is still dominated by Fannie and Freddie) publish schedules of what sort of premium they demand from borrowers with lower credit scores. Any honest mortgage originator ought to show you that info. If you scores are just too low any honest mortgage pro will tell that AND direct you in how to repair your credit. If you know you credit score that is good starting point. If your scores are low becuase of past pitfalls it probably makes sense to use a standard credit card prudently, pay it off ALL THE TIME by not buying more things than you know you have money to pay off in full, and generally being a responsible user of credit going forward.

If you don't have the skills or money to fix up a place you should not be shopping for a fixer upper. You should probably rent. There is very little risk of real estate prices moving up any tie soon and if your big movie deal comes through you will THEN be in a much better position...

[gilgongo]

Thanks for your comments!
The inheritance isn't in a trust. It was in a lump sum that we got last year. Not sure if that makes a difference. Also my mother-in-law gave us some money towards a down payment as well.

I really want to buy because I feel like we're frittering away the down payment on this tiny apartment with a higher rent than our mortgage would be.

Why is it a scam to pay a higher interest rate vs. not be able to get a loan at all?

And our credit scores aren't "low" per se. From what I understand, 740 and above is decent. My husband's (just found out) is 749 - Experian. Equifax is 658. What's the deal with the HUGE difference between the two?

Before the short sale & credit card issues... it was in the high 900s. Mine was around 800. We've always been financially responsible, however, due to some things that happened to us 4 years ago (we lost a baby & some other stuff), everything sort of spiraled for a while. We ignored the credit card issue until we got the inheritance and then negotiated with the credit card companies to do charge-offs on them.

[SmartMoney]

Please stop with the fiction, we get it, good scores. After 30+ years, I've never seen a score in the 900's. At a recent meeting we played, "what's the highest score you have seen?" There were 40 of us, most with 20+ years in the business. I can tell you the number didn't hit 850. I'm not saying they aren't out there, but you see how rare it is.

Inheritance is not income unless it's disbursed on an annual basis and for at least 3 years. Take the money and lock it up where you can't keep spending it - how about a shocking little fact? Less than 30% that inherit/receive/win large sums still have the money 3 years after they receive it. in fact, many actually acquire debt that goes with the money and are forced into bankruptcy by the end of 3 years.

I agree with most of what Chad says, except for paying off any new accounts each month. Accept a couple of those offers you are receiving and never spend more than 50% of your limit. Each month pay it down to about a $25 balance. Paying it off can be scored the same as not using it (Transunion). You need to have a 24 month history on your credit report of making on time payments. Creditors track the date of last activity. If credit is not being used, credit scores drop. I have actually seen cases where someone has gone to "no score" due to inactivity. All other payments (utilities and rent) could be examined. Be prepared to show they are paid on time.

Your income will be calculated 100% on your tax returns, with the caveat, is theincome likely to continue? Typically, only W2 and 1099 income will be considered. But again, it must be likely to continue.

[Jkgourmet]

Does anyone else think that the 100+ point difference on her experian vs equifax reports is odd? I do. I'd suggest she pull and review all the detail to figure out what's going on. I'd also suggest she pull the transunion report, as I'm sure any potential lender will.

I do understand your frustration with paying such a huge rent on a small apt and "frittering" your inheritance away. And I'm not trying to be mean. But I DO wish that people would 'get real' and look at it from the lenders side of the equation. THEY are the one taking the risk of lending you money and losing it. You have already proven that you have a history of not repaying your debts in full. Evidence: you admitted you ignored your credit card debt then negotiated the balance. Evidence: you admitted you did a short sale.

Look at these facts from a lenders view: you are paying your rent from a lump sum inheritance. What happens when that money is gone? You are hoping to make money from a movie distribution deal - an industry that is notoriously erratic and unpredictable. In the end, you have no proof that you can ever repay the lender.

Given their point of view, there's no good reason they should loan you money. And lots of reasons why they shouldn't.

[gilgongo]

Believe me, I'm aware of how terrible we look on paper, and I'm not proud of going into such deep debt that the only way I would deal was to ignore it. We both went a little crazy after losing our baby, and that's really my only excuse. While I'm sure some people could suck it up and move on with their lives... we were not able to do that for a while. But I'm aware that banks don't really care about that... and really there's no reason that they should. I get that.

That's why I was wondering if we put down 30% (or more) and offered to pay a higher percentage rate, if that would make a difference. Even if, for whatever reason, we had another short sale or went into foreclosure... the bank would still make back their money. What if I put (hypothetically) put down 50%? 70%?

And to the person who didn't believe my husband's credit score, I'm almost positive that it was 940 (not the "high 900s" that I previously mentioned). I remember this because my jaw completely dropped when I saw it, and our mortgage broker was pretty blown away, too. And he was all "Oh... is that good?" HAH! My memory, of course, could be faulty. It was something almost unheard of high, though.

Anyway, I started this thread so I could anonymously find out if there was any way we could get a mortgage (without having to get into it all with a "real" person), and I guess I have my answer. Thanks.

[Dreams2Plans]

Originally Posted by chet everett

The various players in the secondary market (which is still dominated by Fannie and Freddie) publish schedules of what sort of premium they demand from borrowers with lower credit scores...

Can you share where to look, please? (getting educated for friend's situation)