Primary residence after a BK?

General Real Estate Investing
1

Hello,

I’m currently renting and have just gone through a BK (about 6mo. ago) so it’s still really fresh on my credit report, which isn’t that great as you can imagine. about 618 fico.

While looking on the MLS I see tons of homes in short sale or Bank owned and it would be the same or cheaper to purchase one of these homes/condos rather than rent.

Is there a solution out there? the agent I’ve spoke with is saying the only way is to bring in a co-signer, but I don’t want to do this. And I know there has got to be other ways. Would a bank that owns a property consider giving me a mortgage on one of their properties to get it off their books?

As far as a down payment I have only got about 20K available, our income is good enough to have no problem meeting the mortgage obligation.

Any Ideas would be appreciated.

Thanks,
B

2

You should have thought about this dilemma before declaring BK. You won’t have a lender touch you(no matter how bad their situation) for at least three to five years and only if you handle your credit during that time with utmost care. See if you can find something you can land contract. You can establish responsible payment history and put money towards an eventual conventional finance purchase.

People need to learn to take care of their credit and quit trying to keep up with the Jones’s. Many of whom are going BK also for biting off way more than they can chew.

3

Mrbz,

A year ago this wouldn’t have been a problem. That is part of what the subprime market handled. That market is now gone. Most banks have policies that will prohibit you from purchasing for at least a year and many up to 2. It depends on some things.

First, I’ll need to know what type of BK you filed? Was it 7 or 13? I think that with today’s guidelines, you probably filed 13. If that’s true, the 13 can actually be a vessel to reestablish your credit. I’ve actually gotten people approved that were in BK (13). Granted, all payments must be made on time for at least a year, but if the Judge approves the deal, and most do, you can still purchase a home even if you’re in BK. But don’t count on it just yet.

Next, where do you live? $20,000 in California is pocket change. On the other hand, if you live here in Dallas, $20,000 can help you a lot.

Next, you are already setting the terms of your new credit. Make damn sure that you don’t miss any rent payments. But just as important you’re establishing alternative credit which can be used when you’re ready to purchase. Examples of alternative credit are, but not limited to, rent, electricity, water, insurance, child care, phone, cell phone are just a few.

Again, depending on where you live, you’ll probably qualify for a FHA loan within 12 to 24 months of your BK. And the BK may not hold you back at all.

I don’t know what happened, but with a 618 credit score after BK, well, that isn’t that bad. Most loans want a 620 or higher, but FHA doesn’t have a credit score system. They will look at each as an individual.

It’s been said that BK is money management for the wealthy. I’ve known many executives that have gone bankrupt and within 2 years were worth well over a million. Hey, there are valid reasons for a BK. Major medical just to name one. But on the other hand, if you just overextended yourself because you wanted that new shinny car…well, then the others on this board are right…Learn to control your spending…

I hope this helps…

Good Luck,
Ken Tate (a.k.a. Mr. Real Estate)

4

At this point, your best bet to purchase something is probably to find an owner who is willing to give you a break and hold financing.

Chris

5

Ken,

That might be something that I’m interested in. Just to answer some of your questions. Chapter 7, not 13. It was a business that caused the BK not fancy toys. and California is where I live.

Will FHA work for me? by the time I apply for the loan, approx. 4 months from now my credit score will be around 650. I will also have more for a down payment, but not much more. I’m shooting for a bank owned property, or deeply discounted short sale so the LTV will be something like 60-70% with the down factored in.

I really wasn’t even considering conventional financing, but if there is some way that they would consider the deal, I would prefer it. I have a feeling that If I get the owner to carry the note there isn’t going to be a whole lot of room for concessions.

Any feedback is appreciated.

6

When you say “agent” who exactly are you referring to? An RE agent?

No offense, but if so, that isn’t where you need to be getting your info from.

You need to find a reputable, preferrably referred, mortgage broker and speak with them about your situation. They can better tell you EXACTLY what you can, or will, be able to do when.

NOTE: Do not go to several different companies looking for loans. Either go to one and see what gives, or pull your own credit report (with score) and take it with you.

I don’t know your market, your state laws, or your particulars, but it’s entirely possible that you could be able to finance something now.

Raj

7

Mrbz,

I’ll address yoiur question about whether the bank that is holding the foreclosure will loan you the money? I think I see what you’re implying. It looks like your thinking that because the bank is in a jam, they may be quicker to loan you the money. If that is your question, then the answer is no. I get calls almost daily from buyers that think because they are in some sort of jam they need to go after a distressed property. Nothing could be further from the truth. Banks do make loans to buyers on their properties, but the two things are totally independant of each other.

I tell people very honestly that I have to make a business decision as to whether I’m going to work with them or not. After all, if I can’t make money off them, I can’t put food on the table. Personally, if you were here in Texas, as soon as one year has passed, I’d work with you because I know that with the money down and your credit score, you can buy a house, at least here in Texas.

Whether you knew it or not, Chapter 7 is by far the best way to go. Most don’t understand that when they file Chapter 13, that everytime an update is done, the clock resets and the time before the 13 is taken off the report starts anew. That basically means that 13 doesn’t come off until about 10 years after the last 13 payment is made. That can be up to 17 years from the time one filed 13.

I didn’t think it was toys that caused the BK. Although that does happen, it is not the main reason for people filing a BK. I’ve seen people file BK with credit scores over 800. Maybe its medical, maybe a divorce, maybe a loss of a job or maybe even a death. Hey it happens. Sometimes it just isn’t a choice. I had a lady call me a few years back with perfect credit. She’d never missed a payment. She wanted to short sale her home and upon completion of that, whe filed Chapter 7. Her husband left her. If one believes her story, he’d gotten mixed up with drugs, quit his job and just disappeared. She was only working part time. She had little to no income…well, I’m sure you can see at least for her, it was about the best she could do.

OK, California…Is it true. Is California really a state? LOL…Seriously, I don’t know the FHA limits in California. You’d need to speak with a loan officer to find out. Here in this area of Texas (Dallas), the FHA limits are about $273,000. I understand that would get you a good closet and a half in parts of California. My son is located in the Navy there and he’s given me some feed back as to the prices…OUCH! I think FHA has a waiting period of 2 years after a BK and 3 years after a foreclosure. Talk with a loan officer for verification. I’ve gotten people approved with a credit score of 520 here in Texas using FHA Each and every circumstance is looked at differently. With your down payment and your credit score, you really shouldn’t have much of a problem.

There are other ways than using a co-signer. Again, if you can go FHA, you will not need a co-signer. The only thing is do you need to wait 1 year or 2?

You stated that it was a business that caused your BK…Did YOU file Chapter 7 or was it your business? I think I know the answer. Again, with your strength, dollars down and credit score, you should still be able to purchase a home.

You mentioned that you have about $20,000 to put down and you’d like to have that factored into the deal, assuming that you could get a home for 60% to 70% of value. Actually, I don’t think lenders look at it quite that way. They look at a percentage of LTV or purchase price, ever which is lower. Still going FHA, this will not hurt the deal at all. I can only see it adding value.

Seller financing is always good. If the owner would carry a balloon note due in let’s say 2 years, you should be good to go. I’ve been doing this for 22 years and have only found two owners to tote the note. Granted, it is not an area that I specalize in and most sellers want their money now. I’ve even seller financed some of my own property and found it a very good way to make extra money. So don’t give up on that option. They just take a little more effort to locae. Start by looking in the newspaper.

I hope this helps, and again, my keyboard isn’t working well, so I apologize for any typing errors. I still haven’t figured out how to do a spell check on this screen…

Good Luck,
Ken Tate

8

FHA is two years for a chapter 7 and one year for a chapter 13 (as long as your payments have been made on time). I would look for a seller financed property and make sure that it is recorded. Then once you have waited the requisite amount of time you will be able to just refinance the seller financed property and take advantage of the equity you have built up. Hope this helps.

9

Ken,

You are way off on your FHA loan limits here in Texas. $273,000 is way over the limit. $200,160 is the cap on a SFR. Now the $273,000 may be what you think it is going to go up to after the loan limits are raised, but at this point and time 200K is the limit.

10

Thanks for the input everyone. It seems that I will have to wait some time before conventional financing can even be considered, 2 years seems like a long time at this point, well actually its more like 1.5 years now.

Would hard money make sense? I know the rate would probably double the monthly payment compared to a bank but if I can get a property valued 60% under the market??? I was reading on a hard money lenders website that they want to see 50% LTV for any new relationships. Granted I have not done a ton of research on private money but I understand they don’t care a bit about credit. Just equity, but I’m sure they have to look at cash flow as well, unless they would prefer to foreclose on the deal and make a 100%ROI in 6 mo… I don’t know.

Has anyone ever used hard money for something like this, would it work? I wouldn’t mind paying the extra cash every month if I knew that I had a ton of built in equity.

I guess the plan would be to use hard money. buy from motivated seller or bank, wait mandatory 2 years then try to refi. Hopefully there is still enough equity in the property with depreciation and the extra interest payments factored in and a bank would actually lend the cash to me at that point.

b

11

Christopher W,

Please don’t take this the wrong way as I honestly think that you and I are on the same side here…

If you notice the way I sign off, it is (a.k.a. Mr. Real Estate), not (a.k.a. Mr Loan Officer). I am usually pretty sure about what I say about real estate, but I have a few loan officers and one underwriter that feeds me the data on loan process and/or amounts. I did visit your website, and it appears you are loan specalists. So obviously, “I” wouldn’t debate what you’ve said…

But having said that, I do have to put stock into what my lenders tell me. I did go back and question the loan amount. The reason is simple as the loan officer that I am using HAS taken a loan application for FHA for a deal that I’m working for $262,000. I talked with them a short time ago and they informed me that yes, they did tell me that the new loan amount here in the Dallas Metroplex will be just under $273,000. In fact, I was told today that the new amount was to be $271,050. I was also told that this should become official this week.

I also asked about bankruptcy, as I’ve done maybe 10 to 12 deals with people that were still “in” bankruptcy, although every one of those were chapter 13. I have only done 1 chapter 7 and yes, they were out more than 2 years.

So while I had my lender on the phone, I asked the question and this was what I was told, which was the same thing I was told about 2 years ago:

FHA “likes” to see someone out f chapter 7 at least 2 years, but each deal is handled differently. It depends on the reason for the chapter 7, as well as other variables, such as what caused the 7? The example that I was given was simple. If it was a divorce, it’s probably not going to fly. But there are many different reasons that a FHA deal can and have been approved for someone that was out of 7 for a year. The workable example that I was given was if someone suffered a death in the family, many FHA underwriters would take that into consideration.

The lender also explained that although it was doable to go FHA 1 year after 7, the odds were really against most borrowers because most borrowers didn’t go into 7 becasue of a catastrophic reason…

I base whether I will work with someone entirely on what my lender tells me. Judging from what I found out today, I would still consider working with a person out of 7 for 1 year or less if, 1) their credit score was at least 650 or greater and 2) there was a real good reason for the 7.

As for Mr. Bz, it is my opinion that he should contact his lender and see what the limits are in California. I think you and I both remember when even here in Dallas, just a few short years ago, each county had a different FHA limit. I would at least check out with a lender as to what the stipulations are in California.

In closing let me say that I appreciate your feedback. In no way do I claim to know it all. I can only speak from either my own personal experience and I’m not claiming that is gospel. In addition, I can only pass along what my lenders tell me and as we all know, each lender works a bit different. Again, thanks for bring to light things that I might have been misinformed about.

Good Luck to all,
Ken Tate (a.k.a. Mr. Real Estate)