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1) Home prices can still go down. Jsut because it went from $600,000 to $299,000 doesn't mean it can't go to $199,000. It depends on where you are to a large extent, here in NC prices are still stable for example. In some parts of CA and FL, prices could still fall a long way.
2) You are buying a home worth $299,000. You have credit card debts. You want the lender to roll the credit cards into the home... therby meaning you would have >100% loan. Sorry, these loans were a bad idea to start and no lender would ever let you include credit card debts into a home purchase. You are basically asking the lender to not only finance the cost of a home (that could decrease) but MORE than its worth by including your other debts.
While this may be a good idea for you, to trade high interest credit card debt for lower interest mortgage debt... what sense does this make to a lender? When you consolidate debts, its because you have EQUITY in the home...
3) If you have large debts and no savings, it means your debt/income ratio will be high and you are spending more than you earn. While you can tell the bank that if they give you a shot with a low mortgage you will reign in spending, they can not trust your intent. Many homeowners go in and buy new furniture, appliances, remodel the home, etc.
The bank will think it likely that if you "save" $250/month by buying a home, based on your past history you will simply find a way to spend it on something else. A history of savings and living below the means you have at the time is the key to good credit and homeownership. Homeownership is not the solution to having debts.
4) Everyone here is trying to give you good advice. Forget what you think home prices can do, you could be wrong as everyone else the last 7-8 years. Forget what you think about 100% financing, appreciation, credit, debts, assets based on what happened the last 7-8 years. Those things were crazy. "Home prices can only go up" "I dont need savings to buy a home" "Debt/income ratios do not matter".
They matter. Homeownership is not a solution to saving money, controlling spending or getting wealthy. You need to get income/debts in order, build an emergency fund of 6-12 months expenses and budget for the expenses of owning a home (which can be vast) BEFORE you take it on. I'm one that thinks 100% financing has its place.... but financing, even with 5-10% down, where the person has no money in reserves and a high debt/income ratio is asking for trouble.
It doesn't matter how good your credit and intentions are, if you need to do an emergency repair, lose your job or somethine else happens.... how are you going to handle it with $0 savings?
1) Home prices can still go down. Jsut because it went from $600,000 to $299,000 doesn't mean it can't go to $199,000. It depends on where you are to a large extent, here in NC prices are still stable for example. In some parts of CA and FL, prices could still fall a long way.
2) You are buying a home worth $299,000. You have credit card debts. You want the lender to roll the credit cards into the home... therby meaning you would have >100% loan. Sorry, these loans were a bad idea to start and no lender would ever let you include credit card debts into a home purchase. You are basically asking the lender to not only finance the cost of a home (that could decrease) but MORE than its worth by including your other debts.
While this may be a good idea for you, to trade high interest credit card debt for lower interest mortgage debt... what sense does this make to a lender? When you consolidate debts, its because you have EQUITY in the home...
3) If you have large debts and no savings, it means your debt/income ratio will be high and you are spending more than you earn. While you can tell the bank that if they give you a shot with a low mortgage you will reign in spending, they can not trust your intent. Many homeowners go in and buy new furniture, appliances, remodel the home, etc.
The bank will think it likely that if you "save" $250/month by buying a home, based on your past history you will simply find a way to spend it on something else. A history of savings and living below the means you have at the time is the key to good credit and homeownership. Homeownership is not the solution to having debts.
4) Everyone here is trying to give you good advice. Forget what you think home prices can do, you could be wrong as everyone else the last 7-8 years. Forget what you think about 100% financing, appreciation, credit, debts, assets based on what happened the last 7-8 years. Those things were crazy. "Home prices can only go up" "I dont need savings to buy a home" "Debt/income ratios do not matter".
They matter. Homeownership is not a solution to saving money, controlling spending or getting wealthy. You need to get income/debts in order, build an emergency fund of 6-12 months expenses and budget for the expenses of owning a home (which can be vast) BEFORE you take it on. I'm one that thinks 100% financing has its place.... but financing, even with 5-10% down, where the person has no money in reserves and a high debt/income ratio is asking for trouble.
It doesn't matter how good your credit and intentions are, if you need to do an emergency repair, lose your job or somethine else happens.... how are you going to handle it with $0 savings?
You make some excellent points more specifically on how important reserves are. When I bought my home recently expenses that I never expected cropped up and how they do add up. Luckily I had enough reserves and thats one of the things lenders look for to qualify you for a loan. Its not just house expenses, they can be auto and all and everything under the blue sky. Unexpected expenses do happen and are just part of life.
Well then I guess I will stop looking into buying a home as there is no way I can make payments on CC's and a mortgage.
Paying off the cards is what needs to happen but since we owe upwards of $50k I am screwed especially since I live in the outrageous priced San Francisco Bay area.
I have to agree that rcarrillo laid it out pretty well. In the current situation lenders are extremely unwilling to give their money to anyone. If some one has a history of racking up debt that makes lenders nervous.
I know that home prices are quite high in most of the SF area. A lot of that had to do with the huge increases in income / stock assets that happened for internet companies. There are still lots of people that are very well off in that region.
I have known people in your situation, with large amounts of CC debt. If you can pay down that debt you will become a very good credit risk, lenders appreciate that. In this climate it is important to try and get the best CC rates you can. At one time there were CC companies that worked with military -- active duty personnel are good credit risks. Not sure if that is going to help you.
There are non-profit debt counselors that MIGHT be an option so that you have a realistic schedule of debt repayment. That is important.
It is not impossible to shop for a place to buy. You can still find situations that will work, but do not rush things. Some rent-to-own MIGHT be a good idea, others might not -- a lot depends on local conditions.
Save you money and know that once you have money in the bank and a handle on your debt then YOU can be in charge of your future. Until then you at the mercy of the lenders. And right now they are not feeling merciful...
Well then I guess I will stop looking into buying a home as there is no way I can make payments on CC's and a mortgage.
Paying off the cards is what needs to happen but since we owe upwards of $50k I am screwed especially since I live in the outrageous priced San Francisco Bay area.
Thanks anyhow I appreciate all the advice.
Mike
Hey Mike;
I'm about your age, and have owned quite a few homes over the years. Home ownership is great if you're on the right side of the financial curve. It's a nightmare if you're on the wrong side.
Honestly, I rather doubt that you're going to find a bank that will go with you on buying a house right now. Without a down-payment, and with high credit card debt, your numbers probably just aren't there. On the other hand, it never hurts to try. You might be surprised. But start with a reputable bank - not one of these stinking fly-by-night mortgage brokerages, that just rent office space in a strip mall!
I don't know about California, but many states DO have "first time home-buyers" programs. I've not heard of them running with 0% down-payment options, but I have heard them it as low as 5% down-payments. Again, it might be worth looking into.
Also, please keep in mind that your principle & interest is just the start of the monthly expense of home ownership. If you were to buy a house that cost $600,000 a couple years ago, I'd venture a guess that the property tax on that house is about $8,000 per year - and that $650 per month is escrowed in to your monthly payment. Then you also have to add insurance, which will probably be about $2,500 per year.
Finally, what you're talking about in regards to paying off your credit cards with the equity in your house, is usually done by means of a Home Equity Line of Credit. The benefits are that the interest rate will be low, and you can deduct the interest paid from your income tax. Unfortunately, most banks won't do a HELoC within the first year of you owning your home. And again, beware of mortgage brokerages that promise to roll all your debt into one affordable monthly payment, and make it magically go away. You're going to get screwed in the end with those kinds of people!
Here's what I'd suggest: Get in touch with a reputable "Credit Advisors" company. Work your way out of credit card debt ASAP, and build a nest egg for a downpayment. Our national housing crisis is NOT over yet. In fact, I'd venture a guess that you'll be able to buy even cheaper 12-18 months from now.
Thanks Filet Mignon but I seriously doubt we can get out of CC debt anytime soon. Our combined income is roughly $70k a year and with big CC debts as well as rent, car payment and all the other bills we are pretty much screwed.
First of all, let go the victim mentality. You are only screwed if you believe you are. Cut out expenses: cheaper rent, downsize to one car, use public transportation, get a second job, sell the crap you don't need, stop eating out, live frugally!!
Stop blaming the banks and get on your feet. Get rid of the debt and save. It might take years, what matters is you should be debt free. Renting isn't terrible, living under a bridge is! Start loving yourself, you are worth it.
Thanks Filet Mignon but I seriously doubt we can get out of CC debt anytime soon. Our combined income is roughly $70k a year and with big CC debts as well as rent, car payment and all the other bills we are pretty much screwed.
Get in touch with a good Credit Advisor company. Seriously.
I know there are bad ones out there, but a good one can do you a great deal of good. I think you might be surprised.
There's another major thing to worry about in CA (and maybe other places), in that you have to pay the most recent property tax level. Later it will be refunded if the reassessment goes down. This is what the realtor told me, and there are papers that say this, so you'd have to have the ~$6k+ to cover the taxes the first year.
Well then I guess I will stop looking into buying a home as there is no way I can make payments on CC's and a mortgage.
Paying off the cards is what needs to happen but since we owe upwards of $50k I am screwed especially since I live in the outrageous priced San Francisco Bay area.
Quote:
Originally Posted by Proud Marine Dad
Thanks Filet Mignon but I seriously doubt we can get out of CC debt anytime soon. Our combined income is roughly $70k a year and with big CC debts as well as rent, car payment and all the other bills we are pretty much screwed.
I didnt want to be harsh, so I hope it didn't come out that way. But really, if you are making $70k per year and have >$50k in credit card debts... you need to find some help. Take the advice on here and find a non-profit or other reputable debt counseling agency.
Based on these details, you are pretty much technically bankrupt. You owe almost as much as you make on credit cards and have car payments as well? It doesn't help that you are in a very expensive area with high rent and bills.
I like San Fransico and may move there in the future... and the cost of living freaks me out (huge difference from NC). While it might seem a good time to buy, I saw a report today for 2009 expectations and 8/10 worst markets are in CA. Most are expected to fall 22-25% in 2009 and another 5-10% in 2010. San Fransisco wasn't in the top 10, but I am sure it would be in the top 20 worst.
There are still many problems and foreclosures to be worked out, especially in CA. Even the state is having budget issues and the government might do massive cuts in the next year. Do not worry about missing the next big thing. That mentality is what led us into the current housing mess.... everyone wanted to buy homes now when they could only go up and didn't want to wait to get their finances in order.
See what you can do to save money, cut expenses, make extra income. Talk to a debt counsler and work on those credit cards before you think of taking on any more debt. More debt is not the solution to getting out of debt.... unfortunately the state and federal government have not figured that out yet.
Even if you could get 100% financing right now.... I would advise to stop and work on your debts and build up an emergency fund before you do anything else.
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