Buying a new place while wife is in the process of foreclosure?

[br0nd]

Hey there
Here is my somewhat complex situation -
Myself : Decent salary, savings and excellent credit
Wife: No salary(lost job early this year), minimal savings and bad credit (getting worse every month)

My wife bought a property prior to us being married, I am neither on the title or the note.
We currently live in the property together, but it is too small for our needs and need something bigger.
She decided to stop making payments on her house a few months ago, since we are seriously underwater and we need a bigger place. Technically since I am not on the title or the note, this should not impact my credit or show on my report.
I am not here to debate the ethics of this since we are doing a strategic default, but can I qualify for a new loan since I have good credit , substantial downpayment (can easily put down 20%) and good salary?
I have heard varying responses ranging from
1) No problem
2) Might be an outside shot, since they will want to verify 12 months of payment history for me (and since the mortgage is in default that is trouble)
3) I might be ok, since technically I pay my wife rent (although we each pay some of the bills, so each month we figure out how much exactly I owe her or not (including rent))
4) No way - We just need to resign ourselves to walking away and renting

A few questions, which of these options is true? I would love to buy a house, but I also do not want to commit mortgage fraud (which I don't believe I would be?). Also if I can't buy a house now, can I buy one in say 12 months, once I am renting a new place and can show 12 months of payment history?

Thanks so much for all your responses.

[jakelabry]

I think you "can" buy a house but I question why you would want to! This is probably the worse time in the history of this country to be buying a house. There is a huge inventory of foreclosures that haven't even hit the market yet. When they do come it will drive housing prices down even further and that 20% you put down now will disappear. I personally feel that being a renter is the best place to be for at LEAST the next five years. Do yourself a favor and google "shadow inventory of foreclosures." Remember, though, to disregard anything written by the real estate industry.

[StuckInAZ]

What state are you in? Community property laws may come into play.

I am in a similar position except reversed where I have the property purchased before marriage and my wife is in the clear.

From what I've read and people I've talked to, it largely depends on the type of loan you are applying for, the lender you are applying through, community property laws in your state, and timing of the default.

The lender I spoke with said that lending guidelines had recently tightened to try and prevent buy and bail / mortgage fraud so that certain types of loans, such as FHA, would require them to pull the spouses credit, which would end up torpedoing you. At the time I spoke with the lender, that particular lender was still accepting single spouse applications for conventional loans but the lender expressed concern that the qualification would go through just fine, but a title search done by the underwriter MAY bring up the existing home through the marriage connection which would then look suspicious since it wasn't disclosed and they may just pull the loan due to paranoia. Now this was this lender's humble opinion of course and there was some question as to whether a title search would actually show that connection and whether the fact that it was a premarital asset mattered.

Re: mortgage fraud. My understanding is that it is only mortgage fraud if there is deception involved. I.e. You are misrepresenting your ability to repay the loan in some way. If you can find a lender who will allow you to apply using only your info and you don't misrepresent anything then I would say you are in the clear, but as always consult with a competent attorney if there is any ambiguity there.

The question you bring up related to providing past rental proof is a good one that I hadn't even considered so I don't have an opinion on that one. I suppose if you provided your current residence they'd easily put 2 and 2 together. Good luck and let us know what you find out / end up doing.

[br0nd]

Originally Posted by jakelabry

I think you "can" buy a house but I question why you would want to! This is probably the worse time in the history of this country to be buying a house. There is a huge inventory of foreclosures that haven't even hit the market yet. When they do come it will drive housing prices down even further and that 20% you put down now will disappear. I personally feel that being a renter is the best place to be for at LEAST the next five years. Do yourself a favor and google "shadow inventory of foreclosures." Remember, though, to disregard anything written by the real estate industry.

Do you think this is true across the board or maybe different in places like Arizona (which is where I am located) ? I have read tons of articles and believe there is a huge amount of shadow inventory, but I am not sure if it can drive prices any lower or just keep them stable at where they already are for a few years?
Thoughts?

[br0nd]

Originally Posted by StuckInAZ

The lender I spoke with said that lending guidelines had recently tightened to try and prevent buy and bail / mortgage fraud so that certain types of loans, such as FHA, would require them to pull the spouses credit, which would end up torpedoing you. At the time I spoke with the lender, that particular lender was still accepting single spouse applications for conventional loans but the lender expressed concern that the qualification would go through just fine, but a title search done by the underwriter MAY bring up the existing home through the marriage connection which would then look suspicious since it wasn't disclosed and they may just pull the loan due to paranoia. Now this was this lender's humble opinion of course and there was some question as to whether a title search would actually show that connection and whether the fact that it was a premarital asset mattered.

The question you bring up related to providing past rental proof is a good one that I hadn't even considered so I don't have an opinion on that one. I suppose if you provided your current residence they'd easily put 2 and 2 together. Good luck and let us know what you find out / end up doing.

Yes, I am also in AZ. It seems that with the tightening guidelines, most underwriters are now asking for 12 months of rental payment history,and if you live with family (spouse, parents etc), then they check the mortgage payment history of the property instead. Most lenders are telling me that they can try and put my application in, but its almost a certainty that the underwriter will ask for payment history, discovery that my current address is not current in its mortgage payments (even though I am not on the hook for them) and conclude that this is not a loan they want to close (buy and bail?).
I have asked this question of several lenders and even on zillow itself and based on the responses, I think I am resigning myself to rent for atleast 12 months, which is not the worst move in this kind of economy. I do think housing in AZ is cheap and close to replacement cost in a lot of cases, but the market is not rational. I would not be surprised with increasing foreclosures, increasing rates, expiring home owner credits if prices go even lower and lower than replacement value. I would hate to end up being upside down on the new home as well. So maybe renting and riding it out for a year or more is the best thing.
But yes, most lenders are telling me that once I do get out of this house, and actually have a rental and have 12 months of payment history on it. Then I can easily qualify for a loan.

[pauly99]

I'd like to take exception to one of the comments that was previously made. Today has never been a better time to buy. I say that as a real estate investor. I am buying homes today at or around 60% of market value (not market value from 3 years ago but today's market value). There are so many foreclosures and short sales that there are deals to be had in any market. Yes, the selling of a property is the tough part right now but if I had unlimited funds, I would be pouring all of my eggs into the real estate market.. yes, being smart about it and finding undervalued properties.

For folks thinking that it is hard to get a loan these days and the banks have tightened their strings... I'm here to tell you that you need to turn your TV off and stop listening to the radio. No political speech here one way or another I'm just telling you what I am seeing in the industry. It takes a 620+ credit score (and appropriate income) to qualify for an FHA loan. No ifs ands or buts. It is that simple.

[jakelabry]

Originally Posted by br0nd

Yes, I am also in AZ. It seems that with the tightening guidelines, most underwriters are now asking for 12 months of rental payment history,and if you live with family (spouse, parents etc), then they check the mortgage payment history of the property instead. Most lenders are telling me that they can try and put my application in, but its almost a certainty that the underwriter will ask for payment history, discovery that my current address is not current in its mortgage payments (even though I am not on the hook for them) and conclude that this is not a loan they want to close (buy and bail?).
I have asked this question of several lenders and even on zillow itself and based on the responses, I think I am resigning myself to rent for atleast 12 months, which is not the worst move in this kind of economy. I do think housing in AZ is cheap and close to replacement cost in a lot of cases, but the market is not rational. I would not be surprised with increasing foreclosures, increasing rates, expiring home owner credits if prices go even lower and lower than replacement value. I would hate to end up being upside down on the new home as well. So maybe renting and riding it out for a year or more is the best thing.
But yes, most lenders are telling me that once I do get out of this house, and actually have a rental and have 12 months of payment history on it. Then I can easily qualify for a loan.

Br0nd, take a deep breath and a huge step back. Arizona is one of the worse states to be buying houses. You ARE NOT a "real estate investor" am I right? You simply want to own a single house. Give it the rest of this year and at least all of 2010. If prices have truly hit bottom, then they will stay there for the next 3 to 5 years. Also, I don't know how secure your employment is, but unemployment is now 9.7% and every indication is it will go over 10% and not peak until some time in 2010. Just play it smart.

[pauly99]

You don't have to be a real estate investor to get a fantastic deal in this market. I will be closing on a condominium next week that retails for about $105,000 and I'm picking it up for just over $50,000. Can you say immediate equity.

Prices do not stay at certain levels for 3-5 years. That is the same thing as saying the stock market will stay at the same level for 3-5 years. Oh, home prices rose in my neck of the woods the last couple of quarters.

From Case-Shiller
After three years of declines, home prices rose 2.9 percent in the quarter ended June 30, according to the report.
Las Vegas and Detroit, hit hard by the housing crisis and high unemployment, were the only two cities where prices continued to fall.
Cleveland, with a 4.2 percent gain in home prices between May and June, and San Francisco, with a 3.8 percent gain, were among those cities to realize the most gain.


Arizona home prices are at 2000 levels. South Florida home prices are inching up. Time to buy. I am.