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FHA After Chap 7 BK 13 Months Since Discharge + Extenuating Circumstances?

Discussion in 'Stop Foreclosure and Tell Us Your Story' started by Temperance, Jun 16, 2011.

  1. Temperance

    Temperance LoanSafe Member

    Hello, all. Here's the short version of a long (but familiar) story:

    * Husband self-employed home remodeling contractor for over 20 years
    * His business went majorly south w/ the housing crisis -- grossed $260K in 2008; fellto $110K in 2009 Also contracted Lymes in fall 2009; unable to work several months.
    * We couldn't keep up w/ a small business loan, van payment, and credit cards
    * Closed business and Filed BK Chap 7 in March 2010 -- discharged May 2010
    * Kept house and one car
    * Husband has since been unemployed = no money whatsoever; however, has worked extensively on our house and the homes of our two married children who purchased homes in the last year.
    * We owe 65K on a home assessed at 160; on market now for $145K
    * We are contracted to purchase home for 230K
    * Recently inherited 75K from husband's mom
    * I earn 85K and am applying for mortgage in my name only
    * Despite bankruptcy, credit scores are in the 650-665 range
    * I am applying for FHA loan under the "extenuating circumstances" clause -- submitted all documents w/ letter of explanation
    * We are willing to consider rent w/ option to buy or just straight rent if our current home remains on the market
    * FHA application has been in the underwriting phase at Wells Fargo one week -- broker says we should hear "soon" :?

    >>> How long is it reasonable to wait for answer before I go elsewhere?
    >>> What are other (safe) options for a mortgage in the event I get a "No"?
    >>>Am I nuts?
  2. Cat Damiano

    Cat Damiano Mortgage Wars

    Hi Temperance,

    Welcome to the forum and thank you for joining.............

    I am a bit confused by your post unless there was a typo of some sort which I am thinking there may be. You had stated that you owe 65k on your home and it is assessed at 160k and that you Recently inherited 75K from husband's mom. If what you posted was correct, why wouldn't you just take the 75k and pay off your current home? If there is a typo here, what are you planning on doing with the current home once you purchase the other home?
  3. Temperance

    Temperance LoanSafe Member

    Hi Cat, No typo. Short answer is current home has become too big for us, takes a lot to heat, and I am tired of cleaning 14 rooms. It's a six-bedroom three floor 1850's colonial -- completely restored after 20 years of sweat equity-- sits in the middle of a quaint little town in a highly desirable location -- has been more than sufficient all the years the kids were growing. But three of four children are grown and gone and our youngest son is 20. House we're contracted to buy is a custom built ranch, only seven but lovely rooms, w/ garage and shop for husband, and sits on nine acres with the potential for forest assessment and IS the home we'd like to grow old and die in. Heating bills alone will save us $300 a month. Youngest son is game for the transition from town to country and we'd like his help before he finds a bride and starts his own family. ; ) Now of course it has crossed our minds that we could in fact just pay off current mortgage and sit tight, but then we'd have no significant down payment to pursue a smaller home in the country with, which we've always planned to do once the kids were grown, we'd still be heating a bunch of rooms we don't use, AND I'd still be vacuuming and dusting 14 rooms. If our house doesn't sell soon, then we'll either pursue lease-option or straight-out rent it. Incidentally, I did hear from broker -- after a week of underwriting, the application has been sent to "corporate" for review.
  4. Cat Damiano

    Cat Damiano Mortgage Wars

    Ahh, I see. Good Luck with the new loan. Keep us posted on how it all turns out.
  5. Temperance

    Temperance LoanSafe Member

    Thank you. However, because I don't like to put all of my psychic eggs in one basket...the question remains:

    >>> What are other (safe) options for a mortgage in the event I get a "No"?
  6. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    Personally I think if you have the ability to put at least 20% down, taking out an FHA is an incredibly bad idea (unless you are only financing an 80% FHA). Are you aware of all the fees in an FHA? They're monstrous, plus you will be forced to pay PMI, won't you? Maybe Cat knows.

    If you put down 20%, you get the best rates and lowest fees (provided the BK doesn't scuttle that idea, which I think it might).

    I think your best bet would be to rent/option to buy, sock away the inheritance and get farther away from the BK. Over time, the adds to rate/fees for having a BK will go away. 2-3 yrs should do it.
  7. Temperance

    Temperance LoanSafe Member

    Thank you, Surf. This is precisely where I need help. We're putting the whole 75K down, which if I've done my math right, is 30%. Yes, I have tried conventional financing = no go, although they were more than willing to refinance in two years. (Go figure). First we offered the owners 75K down and them carry the mortgage for 15 years at 5%. They didn't balk, but graciously declined.

    Then began the mortgage-seeking process with an offer from a hard money lender. Terms were 50% down, 5.75% interest + points and all that equaling about 8K. We could weather that kind of interest for a few years, but at the moment we don't have 50% down, and the 8K for points and closing really irked me. Still, if I could find a hard money lender that would do the deal with 30% down, 5.75% interest, and a reasonable figure for points and closing, I think I'd rather do that than deal with Uncle Sam's criteria. Yes, I think we would have to pay mortgage insurance -- just not sure how much as yet.

    In the meantime, we've gotten an informal offer on our house. Buyer wants to offer $132K, give us 100K ,and then us carry the remaining 32K in a mortgage from them.

    Sheesh. I dunno. All these financial wranglings make my head spin. : /
  8. Temperance

    Temperance LoanSafe Member

    p.s./ Sorry -- went past the time I could edit. Wanted to add - regardless of what type of mortgage we get, we will be certain to knock off a major chunk of the principal when our house sells; somewhere between 35-50K, depending on the outcome.
  9. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    How long is the prepay with the hard money lender. Prepays typically kick in if you pay down more than 20% of principal during the prepay period.

    One other thing about hard money. If the deal exists where the terms you are quoted by the hard money lender actually are what you get financed, I've never seen it. What usually happens is you submit the whole file then they come back saying the investor is backing out, buuuttttt, if we can double the points and raise the interest, I have another investor who's ready to go. At which point, often your earnest money is forfeit if you back out and don't buy. An expensive lesson in hard money.

    Carrying a mortgage is up to you. It's an option but make sure they can document 12 months of the payment in assets seasoned at least 3 months - that should be a pretty good indicator of income stability. You fax a VOD into their bank. And make is short term - 7 - 10 yrs. A 10 yr loan would amortize out to $339 a month. I have two concerns - first - do you know how to underwrite and assess your risk and second - why don't they qualify for their own financing on 30% LTV?

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