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Old 04-19-2009, 02:03 PM
 
1 posts, read 1,651 times
Reputation: 10

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Ok, I'm sure that I will get blasted for even trying this, but here goes:

Wondering the chances of mortgage approval and what others' think I should do.

1. Software developer making $106/yr
2. Far too much debt, I know. 2 vehicles (that I'm stuck with due to divorce and being upside down - payments right at $1100/mo)
3. Too much credit card debt. Roughly $30k with payments around $800 - I'm down from $40k in the last year.
4. Credit scores range from 630 (Experian), 665 (TransUnion) and 695 (??? - what's the other one?). Nothing wrong with credit to cause low scores; simply too much debt. Period.
5. 401k has been murdered too - less than $8000 remaining from about $17k last year.
6. Approximately $7k for a down payment

Now, before I go getting bashed, please hear me out. I'm currently paying $877 in rent and since I am single and have no dependents, I am getting murdered in income taxes.

Logic says pay off all the debt first. However, I can get into a house for just a little bit more than what I'm paying in rent. As a previous homeowner I am aware of unexpected expenses associated with owning a home.

Even with the debt that I'm carrying, I feel that I am hurting myself even more to continue bleeding out at the rate of $900/month with no tax benefits.

With that said, should I consider buying now - or keep paying on the debt which will take me another 2-3 years to dig out of (all credit cards paid and at least 1 car note note).

Please help. I want to make a solid decision.

Thanks
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Old 04-19-2009, 06:01 PM
 
1,158 posts, read 1,814,670 times
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First, let me congratulate you for lowering your debt, you're heading in the right direction!

However, I would pay off at least one of the cars and pay off the CC debt first. It will eat you alive. Not everything in life is an investment: the food you buy, the utilities you pay, the cars you buy! I view rent as a roof under my head that I need, a house is a want.

I don't know if you could get a mortgage with your debt to ratio and your savings. Please save for a big emergency fund (8+ months) before you save for a downpayment on a house. Two-three years is nothing when it comes to a lifetime. A lot of people never make it to a house! You'll still end up paying mortgage interests, tax benefits don't mean it's free!

Please think this carefully. Your credit score would take a major blow if you end up foreclosed on. Learn from others that are currently in this mess!
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Old 04-19-2009, 09:47 PM
 
587 posts, read 2,016,222 times
Reputation: 224
Why are you stuck with the vehicles? You can always sell or trade them in even though its at a loss. For instance suppose you owe 35,000 on your car loan but sold it for 28,000, now you only owe 7k instead of the 35k.
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Old 04-19-2009, 10:31 PM
 
1,615 posts, read 3,289,104 times
Reputation: 1114
truthfully speaking here you need to learn how to enjoy renting for a little while. sit back and examine your situation, you just went through a major ordeal, your divorce, and you need to assess your situation. Save your cash, pay your debt down, and consider getting rid of a vehicle. Renting isn't that bad at this time. The market is still plummeting. Sit things out awhile and your position will grow stronger in time. You will save, you will have lower debt, your credit will get better, housing will be cheaper. You don't need to jump right back into the fray, it looks like you have gotten beat up enough as it is. There is absolutely no rush into buying a home, your life needs to settle a bit. I may be sounding a bit redundant now even you expected to hear this when you posted. Good luck bro.
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Old 04-20-2009, 04:59 AM
 
26,590 posts, read 56,802,128 times
Reputation: 13073
I agree, you are in no position to buy. In this economy you need to keep your savings as savings, just in case.

You might want to consider a more economical rent situation--maybe a larger place with a roommate. Not ideal, but it will help you achieve your goal faster.

With your current credit scores you'd probably need to go FHA.

You could probably be qualified for up to about $1200/month in PITI, But that's not going to buy you much--maybe $120K of house, more or less depending on taxes.

In all honesty it's not the monthly payment that's your problem, it's your downpayment. Like I said, I wouldn't want to drain my savings to get into a house.

I'd set a three year plan. In 18 months I'm going to assume that at least one of the cars will be paid off, or both will no longer be upside down to the point that you could trade both in and walk away with something economical and paid for or with a very small loan. Might not be the really nice cars that it sounds like you are driving now, but sometimes you need to make choices, and I'd choose the house over the nice car. Take the $1100/mo you've been spending on car payments and save it.

You can probably get your credit cards paid off in two years if you really put your nose to the grindstone and cut out most of your discretionary spending.

Once the cards are paid off in two years, take that $800 a month and save it for a year.

After three years you'd have about $40K in the bank which would allow you to buy a nice home and still have enough savings to get you through an unforseen emergency.

I'd suggest you pick up Dave Ramsey's book. I'm not a Ramsey Kool-Aid drinker, but in your case I think that his finacial principles would work well and help you to get rid of the debt and bolster your savings.
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Old 04-20-2009, 12:05 PM
 
1,340 posts, read 3,429,928 times
Reputation: 450
Quote:
Originally Posted by househunter74 View Post
I feel that I am hurting myself even more to continue bleeding out at the rate of $900/month with no tax benefits.

Thanks
I hear you there. I am in similiar boat (no debt) but no write off while I rent. My short term solution (and if possible long term) was to increase my 401k % from 6% to 15%. Might even go higher % down the road. Just wanted to reduce my taxable income and that was the best way for now until I buy a house.

Not a huge savings but it allows you to reduce your tax liabiltiy and at same time build your slaughtered 401k quicker. WIN WIN.

I would also dump 1 of your cars even at a loss (unless you NEED it) and pay off CC before buying. Should be able to knock out the CC debt in a year with your salary and rent. Be frugile for a year and get back on track. By then prices will be better real estate wise and you will be in GREAT shape to move forward. Good luck...
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Old 04-20-2009, 01:06 PM
 
Location: Texas
5,873 posts, read 7,255,762 times
Reputation: 2967
I hate to break it to you, but w/ those scores in this economy and economic climate in addition to your lack of a down-payment(10% minimum down or 3.5% w/ FHA), debt will not qualify you for a mortgage. If your middle score isn't at least 680+, you're gonna get hosed if not outright turned down w/ the new guidelines that are in place. And that is with a 26/38 ratio's.
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Old 04-20-2009, 01:40 PM
 
281 posts, read 929,691 times
Reputation: 150
Just remember that owning a home comes with more costs than just the mortgage.
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