# Question about bad credit



## TxHorseMom (Feb 21, 2011)

Due to circumstances I'd rather not go into, our credit rating has plunged from about 750 to about 450. There is no bankrupsy, but there is a foreclosure. We are currently renting a very small home for about 1/3 the price we were paying on our mortgage.

In about 6 months, we will have aprox $10,000 saved up. I am looking at a couple of smaller houses that either are not completed (shell home) or need extensive work. These houses range from $20,000-$30,000. We are not worried about the work, we are very experienced home renovators and can hire out for things we can't do. (electrical, major plumbing) What I am wondering is, do you think we could be financed with a down payment of 1/3 to 1/2 the purchase price? We are working on getting our credit better, but I don't know if 6mths will be enough time.

Our with our income, we won't be "house poor" (combined income of $130,000) we have no credit cards. Only rent, 2 car payments and living expenses.

Please don't flame me about getting into the situation in the first place. What's done is done and it can't be changed.


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## whodunit (Mar 29, 2004)

I would follow Dave Ramsey's advice...

Create a workable budget

Save $1000 emergency fund

Pay off ALL consumer debt (including cars) starting from smallest to largest using the debt snowball (keeping current on all- when one is paid off apply that payment to the next one and so on...)

Save 3-6 months emergency fund

This will get you started. 

You can continue saving for the down payment during this time, which will give your score time to come up, if needed, and time to heal over the emotional toll all this has taken.

He would also likely advise you to save up and pay cash for the house. At those low prices and with your income, you ought to be able to do all this in pretty short order.

I wish you well.


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## TxHorseMom (Feb 21, 2011)

Thank you Whodunit. We have made a budget that is realistic and livable. We are currently working on paying off the consumer debt. (I paid off a $1200 debt last week woo hoo!) I am working as much OT as possible. (hubby is not allowed any OT at his job) The "back up" plan is to just pay cash for the house, but I worry about someone else getting it before we do. (I know, if it's meant to be it will happen) One of the reasons I want to get it in about 6 months is because my son is being deployed to Afghanistan (again) and I'd like to throw myself into a "project" while he's gone to kinda keep my mind off of things. But who knows, maybe the house I like will go down in price by the time we are ready. Again, thanks for the advise. I welcome all non-judgemental advise and tips for anyone else out there.


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## PaulNKS (Jan 11, 2009)

With the foreclosure, my guess is that you won't get any financing for awhile. If it was me, I'd save the cash and buy a house even if it means not getting the one you want now. There will be others. 

If you have a foreclosure, you realize that house payments may not always work out to your advantage. Pay cash.


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## MO_cows (Aug 14, 2010)

Even if you can get a loan, I wouldn't do it. I have heard of banks coming after customers who were foreclosed on to try and get the difference between what was owed on the property and what they got out of it. You have a good income, so there is something for them to go after. So for that reason, plus even if you do get a loan it will be at higher interest rates, I would lay low and save and try to buy something for cash.


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## lurnin2farm (Jun 10, 2012)

Look for a land contract or owner financing. You can get decent terms from most homeowners and your not using the banks who create money from thin air and add to the devaluation of the dollar. Its a win win for everyone... except the banks. . Paying cash is also the best way if you can do it. You only make so much money in a lifetime, the less you give to banks in interest payments the better.


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## Dusky Beauty (Jan 4, 2012)

Cash, owner financing, or look up a private investor-- there are wealthy folks out there locally who have financing at their discretion and may loan you the rest of the money (albiet at a higher than bank interest rate.)

One of your area's busy attorneys should know someone who does private financing.

Some may not care about your repo troubles. Some make tidy sums choosing someone to loan or finance to who is MORE likely to default and pocket the payments paid and sell the house again (and again). The less honest anyway.


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## DAVID In Wisconsin (Dec 3, 2002)

With a credit score of about 450 most banks won't touch you. You'll likely have to find owner financing or a land contract. The interest rate will probably be much higher than a typical bank. But at the rate you're saving you'll have the money to pay cash in no time. Good luck.


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## whodunit (Mar 29, 2004)

Be cautious with owner financing or a land contract. While I don't know much about them, they concern me. If anything , at least get everything in writing and involve a real estate attorney.

BTW, Ramsey calls the FICO a "I-love-credit-score".  Obviously, if you pay cash, it's yours to keep and nobody can take it away from you. 

Have you considered offering $10K on one of the $20K proeprties...you never know what kind of financial straits others are in.


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## po boy (Jul 12, 2010)

You will have to wait a minimum of 3 years after the foreclosure and get your score way up.

In addition there are not many lenders that will write a mortgage that small and property condition may be a problem.

Best to find an owner finance deal.


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## shanzone2001 (Dec 3, 2009)

My concern would be getting a loan on a house that needs so much work. Banks are pretty picky now about what they lend on.
Also, because of your credit score, any loan you are able to obtain will most likely have a horrible interest rate, include points and be loaded with junk fees.
You are in a good position because you have a good income and are looking to buy a house that costs what many folks spend on a vehicle.
If you don't want to wait until you have the whole amount saved up, I do think finding a private investor is a good option. 

Good luck to you and give your son a hug for me!!! (My step son returned from Iraq last fall and wants to go back....it has been tough so I am sending you a big mom hug!)


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## Karen (Apr 17, 2002)

Before you do anything, you will need to find out if there will be a Difficiency Judgment on your foreclosure. People think they can just walk away in a foreclosure, but in fact, you can (and usually will be nowadays) held liable for the difference in what your mortage balance was and whatever the house ends up reselling for. Sometimes that judgment is many months (or even a year or more) down the road due to how ever long it takes to resell.

For instance, if you owed $100,000 on your home at the time of it's foreclosure and the lender can only sell the property for $40,000, a collectible Judgment will entered against you for $60,000 plus attorney fees, court costs, etc. and all costs of the foreclosure.


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## MJsLady (Aug 16, 2006)

This depends on the state. In some states the lender can not come after you if you walk away. You can still be sued for taxes but not for delinquent mortgage amounts. 




Karen said:


> Before you do anything, you will need to find out if there will be a Difficiency Judgment on your foreclosure. People think they can just walk away in a foreclosure, but in fact, you can (and usually will be nowadays) held liable for the difference in what your mortage balance was and whatever the house ends up reselling for. Sometimes that judgment is many months (or even a year or more) down the road due to how ever long it takes to resell.
> 
> For instance, if you owed $100,000 on your home at the time of it's foreclosure and the lender can only sell the property for $40,000, a collectible Judgment will entered against you for $60,000 plus attorney fees, court costs, etc. and all costs of the foreclosure.


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## Lazy J (Jan 2, 2008)

Sit tight and rent for a couple of years. With a credit score in the subterranean level you won't get financing.

Pay your rent on time, pay off the cars as quickly as you can, and build up cash.


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## HOTW (Jul 3, 2007)

Hav eyou approached the ban about a Deed in Lieu of Foreclosure? My DH and I did this years ago and it saves the bank money by not needing to go thru all the legal paperwork. You bascially siign the deed over tot hem and its done. Usually it has to be because of hardship but our bank appreciated it because it was all doneand no hassles on their part, we vacated the house quickly and all were happy.

It prevetns a stain on your credit rating.


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## Karen (Apr 17, 2002)

MJsLady said:


> This depends on the state. In some states the lender can not come after you if you walk away. You can still be sued for taxes but not for delinquent mortgage amounts.


Only 12 states have no Deficiency Judgments; all others do: Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah, and Washington


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## oregon woodsmok (Dec 19, 2010)

If you can save $10,000 in 6 months and buy a fixer for $20,000-$30,000, then just keep saving for another 6-12 months and pay cash.

You might be able to get owner carry with 33% down on a fixer, but interest rate will be high and sales price will be the highest possible. People don't sell screaming bargains on owner carry. They sell over-priced properties on owner contract. Just save a little longer. Time goes by quickly


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## oregon woodsmok (Dec 19, 2010)

I've been looking at an inexpensive area and the properties offered rent to own, or owner carry are asking for a down payment that would buy the entire property, if you are a good shopper. Then they want a huge amount more and are asking 12% interest.

People might take advantage of you (generic you), if you allow it. Not educating yourself is allowing people to take advantage.


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## airwolftruker (Jul 15, 2011)

MO_cows said:


> Even if you can get a loan, I wouldn't do it. I have heard of banks coming after customers who were foreclosed on to try and get the difference between what was owed on the property and what they got out of it. You have a good income, so there is something for them to go after. So for that reason, plus even if you do get a loan it will be at higher interest rates, I would lay low and save and try to buy something for cash.


Also, if the bank doesnt they could give you a tax paper saying that it was forgiven.
but that would turn your forgiven debt from the bank into taxable income.
Relax and keep renting.... if you can buy a home for 30,000 and you already have 10,000
You would be best to pay cash


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## TxHorseMom (Feb 21, 2011)

I think we've pretty much decided to just save up and pay cash. And who knoes, we may get the price down some by paying cash. I am happy to report that we are paying off another loan/bill this week and am able to make a payment to our lawyer for $1000. (Long story, but nothing to do with debt or foreclosure.) So I really think we are on the road to recovery. I told DH tonight after we wrote out checks, that this was the first time in a long time that we coyld pay our bills and,not end up upset or with a headache.


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## NorthCountryWd (Oct 17, 2008)

Karen said:


> Before you do anything, you will need to find out if there will be a Difficiency Judgment on your foreclosure. People think they can just walk away in a foreclosure, but in fact, you can (and usually will be nowadays) held liable for the difference in what your mortage balance was and whatever the house ends up reselling for. Sometimes that judgment is many months (or even a year or more) down the road due to how ever long it takes to resell.
> 
> For instance, if you owed $100,000 on your home at the time of it's foreclosure and the lender can only sell the property for $40,000, a collectible Judgment will entered against you for $60,000 plus attorney fees, court costs, etc. and all costs of the foreclosure.


Not sure on this and also wonder is a foreclosure considered "forgiven debt" by the IRS? Maybe not because you do not keep the collateral?


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## TxHorseMom (Feb 21, 2011)

I live in Tx and people are pretty protected here. Theres not a whole lot they can do other than ruin your credit. Not saying its fair, but it is what it is. What I don't understand is why we couldnt get refinanced. I saw the house listed online for about $100,000 less than we owed. Seems to me they would have gotten more money if they refinanced us. Oh well, what's done is done. I'll tell you one thing, lesson learned i will NEVER get into a situation like that again. ( which truthfully, was,to a large extent our own fault.)


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## Molly Mckee (Jul 8, 2006)

Debt forgiven is income according to the IRS. Most banks will send you (and the IRS) a 1099 for the forgiven amount when they write it off--which can be a year or two after you lost the house. The amt is taxed as income the year it is filled. The laws in states that protect your home do not apply to forgiven dept.


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## TxHorseMom (Feb 21, 2011)

Molly Mckee said:


> Debt forgiven is income according to the IRS. Most banks will send you (and the IRS) a 1099 for the forgiven amount when they write it off--which can be a year or two after you lost the house. The amt is taxed as income the year it is filled. The laws in states that protect your home do not apply to forgiven dept.


That's good to know. There's nothing I can do about it now. We'll just have to wait and see. If there is a tax bill, We'll just have to pay it I guess.


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## edcopp (Oct 9, 2004)

NO FLAME.

Now keep in mind that you have given us way less than half of the facts here. It will be very difficult to make good suggestions.

You have a high income and a perfectly sorry credit score, along with a foreclosure and BK.

My first suggestion is to figure out what went wrong, and don't do that any more. Put your $10,000 in your pocket and don't admit to having it. Forget about your credit score it will get some better all by itself.

If you want to buy a house to fix, use the sellers money. There are millions of sellers who are downright desperate in today's market. Let them finance you. Most sellers who can't sell right now know that the housing market has dropped about 40% in the past three years; but they refuse to admit that. Find a seller that understands the facts. Then deal with them, not a bank.

Banks for the most part today are busy trading the commodities markets, and have little time or cash for ordinary people. They would rather have their (depositors) money invested in food, grains, fuel, meats and so on. This is guaranteed by the USDA food stamp program, and very profitable. They could care less about you, your credit score, or your fixer house.

One house at a time would by my suggestion. Find it, fix it, take your profit, and then do another. No credit checks, and no banks needed.


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## TxHorseMom (Feb 21, 2011)

By BK do you mean bankrupsy? If so, we "only" had a foreclosure. (I know, bad only.) We know what happened, it was a personal decision we had to make which resulted in the bankrupsy. But the situation has been resolved, so it won't be repeated, it was a one time thing. As I said, we have put ourselves on a budget that is livable, but we will still be able to save$$ to buy a new one. I really, REALLY like the idea of having our home paid for. We don't want to get in the business of buying and rehabbing houses, just want to rehab our own house.


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