Wanting to Buy a House, but How?

Updated on May 22, 2008
L.Y. asks from Madison, TN
11 answers

My husband and I have been moving from apartment to apartment for the past few years and I am so sick of moving all the time. We are greatly in debt. My husband's credit is cleaning up, but I have two judgments against me. We know nothing about the housing market (how to buy a home, who to go to) and we don't want to be suckered into something we can't afford. I am hoping to buy a home within the next three years. Paying off our back debt is difficult with 2 children, one an infant (hence formula, diapers, food, etc.), daycare, and 2 cars (one that's constantly needing oil), but we're planning to start as soon as the baby is off of diapers and formula. We make roughly 42,000 a year take home. We don't get big raises at work. I get like $.25 on the hour a year and my husband gets anywhere from $.25 to $.50 a year. I worry that we may not make our 3 year goal because someone told us if we have any defaulted debt that the creditor can take a lien out on our house and throw us into the street. At the rate we're going it's going to take us about 10 years to pay all of that off. Our apartment is so small (2BR) and moving into bigger one is so not an option with the running rate about $800 a month for a 3BR. Could someone please give us some advice?

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answers from Memphis on

There are lots of ways to help you bring down debt and still purchase a home (without getting ripped off) Try to stay in the same apartment for the next three years while you are paying down your debt, pay off small credit cards (if you have any) then work on the bigger ones or start paying off small debt (while still paying the others) then take that money once that debt is gone and apply it to another one. If you make a spreadsheet of what you make, what you own, what you spend, you can start eliminating things that you do not need, you will get a clear picture of where your money is going and tackle it from there. Look for a lender that has a good reputation, get prequalified right before you start looking for a home. I think I still have a emailable version of Suze Orman's women and money book if you would like to read it, I will be more than happy to send it to you, it is a very simple but effective way to help you save, reduce debt and invest for the future. Try not to get discouraged and give up, it took years to get into debt it will take a little while to get out of it but it is possible as long as you are willing to stick to a plan that you and your husband can live with. Just remember all things are possible it just takes determination to get there and faith in believing you can.



answers from Charlotte on

Really think hard on why you want to own. It's a big responsibility and you might be suprised at the cost of maintenance that you don't pay when you rent.

So many people are in trouble right now because they got loans that they could qualify for and couldn't afford! Qualifying for a loan and affording one are two different things! Right now with credit an issue for you, qualifying would be a problem... but even if you found a way to get a loan, would you really be able to pay the mortgage? You pay you stay, you don't you won't! Figure how much a home purchase would cost you a month (add charges for water and electric if it is something you don't currently pay in your rental.) (You can go to a great website called MyFico.com to get estimated monthly payments based, in part, on your credit score... you have to add the taxes for your area. There is AMAZING info on fixing credit... start there before you head to a credit counseling service.) Then start "paying" that amount now! Save the extra amount in a savings account for the future down payment. If you can't keep that up, how will you keep it up when you own the home? Very little is more stressful than owning a home you can't afford and choosing between formula and electricity.

Home ownership can really be a great... it is usually a wonderful investment and gives you pride in ownership and a stable environment for your family. Definately strive for it, but it is the mac-daddy of financial responsibilities. If you are having problems with your smaller ones (two judgements) I would caution you against diving into the deep end of the ocean without turning your financial picture around a bit first! Good luck to you and your family.



answers from Greensboro on

After reading all of the response I decided to let you know about another method that noone here has mentioned. I brought my house 10 yrs ago as a single parent making less than $18,000/year. I was able to do this by doing a rent-to-own and having the owner hold the mortgage. For the first year I rented paying a higher amount than the original rent that was held toward the down payment if I exercised the purchase option which I did. I own a 3bedroom 1 bath house on approx. 1/3 acre of land and I only have 10 yrs left on my mortgage. My interest rate is 10% which I know is high today but at the time is was great because with my credit there was no way I was going to get anything better with a bank if they would have financed it at all.

So please consider looking at some for sale by owners and at the same time keep in mind that with the market being the way it is you may be able to find one where the owner would be willing to hold the mortgage that would save you from having to try to get it financed!



answers from Memphis on

Hi I work for a law firm and we handle bankruptcies here. What I have found (in fixing my own bad credit) is that if you contact your creditors and make payment arrangements with them. The places where you have the judgements you would have to contact them directly also to make arrangements to pay; they can't garnish or place liens on you if your are making payments and they accept those payments.
But what I have experienced with some of our creditors, if you owe alot they want large lump sum payments. Just let them know that you are unable to make a lump sum payment no matter how great or small.
By the way you need to correspond with everyone via mail, return receipt only. This in case later they deny any payments or add additional interest you have a paper trail of all your payments, correspondence and amount owed. Make sure that you and your husband are realistic about how much you can pay every pay period or monthly. Don't over budget yourself; if you don't hold up your end of the agreement they have grounds to terminate your agreement to pay. Even if it's just $20 per month, make the payments as you state in your letter. These letters will also help you when you and your husband apply for financing for your new home. It helps you when Mortagage companies see that you are attempting to handle your debt situation. Hope this helps and good luck.



answers from Knoxville on

I suggest you check out Dave Ramsey on his Web site at http://www.daveramsey.com. You can follow his plan (not easy, not quick ... but it's a responsible, real way to get out of debt and start living the way you want to in the future). No more credit cards, no more spending more than you have, you have to budget every month (or how often you get paid) for everything ... paying off debt, food, etc. ... but only after you build up an emergency fund (this has been the best thing about his system for us). Good luck ... I wish you all the best!



answers from Raleigh on

Girl, it will take a lot of sacrifises for couple of years, but you need to set the goal and work towards it.Get second jobs(night, weekend), pay off your debt and cut up credit cards!!!( we bought house 2 years ago when credit was great and job was good , lived paycheck to paycheck but bills were payed.... 6 months after that we got scammed for $3600 started using credit cards .....almost lost our house, our cars, did not have money for food......2 years later we are still having hard time....we're in debt upto our ears.When you use $$$ you do not have it will catch up with you....)
Do not look at your situation like" oh we have small apartment, only 2 bedrooms".....be thankfull you have a roof over your heads, but work towards your goal. You need a plan that you need to stick to.....contact them , they can help



answers from Raleigh on

First of all, you both need to clean up your credit.

Assuming that you can even get a loan (it's really hard to get one since the housing crash, and the economy is in a recession), your interest rate will be very high if you have poor credit - so your monthly payment may be more than you could afford. You'll also have additional expenses of homeowners insurance and property taxes. With your credit being bad, you'll probably need to purchase PMI, which is a insurance required by lenders for people with poor credit. Those expenses add up faster than you think.

As far as creditors on other defaulted debt taking out a lien - you dont own your house after you buy it, the bank that holds your mortgage owns the house until you've paid off the mortgage, typically in 30 years.

I would advise that before you even think about buying a house, you both clean up your credit. Go to credit counseling to see what you can do to consolidate your payments or lower your interest rates on existing debt. If you are only making minimum payments on debt like credit cards, then you are only paying the monthly interest and not the principal - which is the amount you actually borrowed or used. Depending on your circumstances, you may want to consider bankruptcy. You can only file once every 7-10 years so after a bankruptcy, creditors (lenders) are sometimes more willing to lend you money because they know you cant file bankruptcy again. You can get a free consult with a bankruptcy attorney to find out what your options are (you may not even be elible, or all of your debt might not be eligible). Depending on your family's needs and current work schedules, maybe one of you could pick up a second (part time) job for awhile... and use that money strictly for paying off debt. I dont know your situation or the market in your area, but maybe even consider looking around for a new job to replace your current one. When paying off credit card debt, pay off the one with the highest interest rate first (and pay minimum or whatever you can afford on other debt). Once you've paid the highest interest card off, take the money you were spending on that card and apply it to the next highest interest card or loan until that is paid off. Continue to do that until you've paid it all.

Once you've brought your FICO credit score up, then I'd talk with a realtor about the house buying process. Until your credit is better, you probably wont be able to afford a house because your credit will hold you back and increase the interest rate on any loan.



answers from Greensboro on

Hi L.,

My advise would be to definatly check out DAVE RAMSEY's FINANCIAL PEACE COURSE...it has made all the diference in our life. My husband and I bought what we though was our dream house on 11 acres for $65,000 in '95 $480 pymt. Sounds like a good deal but because it was an older house we had to keep refinancing just to update the house to help save on energy bills. We ended up $120k in debt and a $1200 mrtg pymt. Was near forclosure 3 time in 10yrs. We got lucky sold the house rented for a while, took the Dave Ramsey course decided we didn't want to go in further debt. We commited to paying cash or doing with out! The only exception we have made was when we where approach by a Habitat for Humanity worker that suggested we go thru them for a home. We did and ended up with a brand new energy effecient home. $350 mtg pymt(Includes tax and ins) NO INTEREST and a 30yr mtg. We helped to build our home which made us appreciate it more and we know everything about it so we won't have any surprises. May people look down on Habitat only because they don't understand it. It is no different than the BARN RAISINGS they had in the old days, before my time. When you make your house pymt it goes towards helping to build more houses. Hope this helps. Best Wishes to you and your family.





answers from Charlotte on

Hey L.,

I'm guess I'll tell you how we approached this, and maybe something I say will help your situation. We also had so many people tell us that there was no way we could buy anything, and they were right about not being able to afford our dreamhouse. But, my husband and I were determined to start somewhere.

We were renting an apartment in a building close to where my husband works. The way the building is set up, all units are not owned by one company, instead each is owned by an individual. While we were renting on the second floor (2 bd, 2 bth), a unit went up for sale on the first floor. We knew we couldn't afford anything more than say 90K. Our rent was $750, so we looked into it to see if we could buy this unit and have our mortgage plus HOA's for this amount or less. Turns out we could.

We did 100% financing with the seller paying the closing cost. However, we did a standard 30 year loan with a FIXED interest rate. We felt comfortable in doing this because the selling price was a good 5K less than what other units this size sale for in the building. The man who lived there had passed away and his neice was trying to get rid of it quickly. Of course your first few years mortgage goes to mostly interest, BUT you can file the interest plus the home mortgage insurance on your taxes!

When we started looking for lenders, of course we had to search for one who would do 100% financing. After much asking around, we found one. My credit situation and score was better than my husband's so we did the loan in my name only. My credit score at the time was around 655, so they sent everything to underwriting to get me approved for the loan. I would pull your credit and find out your exact situation and score. Whoever said to write letters to your creditors and make small monthly payments was right. The underwriters will find this information, an you'll have a better chance for a loan!!

So I guess my thoughts are to start very small. I will tell you, our condo is SMALL, but its all we could afford to begin with - but we own it. In a few years (we are working on small upgrades while we live here) we can sale it and get something that is a good size for us. We know the tight situation we live in now will pay off. I'd suggest looking for something small. Lenders that will do 100% financing are even less available now than they were, but they are still out there if you look hard enough. Good luck to you and your family!!



answers from Nashville on

My husband and I boke a house and fixed it up. We gave 72,500 for our house and financed 87,000, My father is a builder and he got a construction loan, we borrowed enough out of that to fix the house up, thats why we financed 87,000. We already have 20,000 dollars profitt, My opinion is start to pay off everthing, we have 1 bill left at 6,000 dollars and we are dept free except for our utilities, I have a tahoe and it will be paid for in a year. about the formula, ask you pediatrician for samples every time you go. I am a peds nurse and we always have samples. what kind of formula are they on. You have to make sure your credit is good or you can't buy a dog (haha). its crazy, I would go through a relator not for sale by owner. Good luck with everything, we are actually in the process of refreshing our house to sell and go bigger, we have a 3 br 1 bath basement house, it was good for first home, been here 6 years, we have a 4 yr old now its time for 2 bathrooms. J.



answers from Lexington on

i just read an article about this the other day, and there is a new school of thought on first time home buyers. with so many people loosing homes to foreclosure, they now say that if you can not save up a 10-20% down-payment, you probably cant afford the house. also, if you can not afford more rent than 800/month, you will be hard pressed to find a mortgage that is less. once you add in your home owners insurance and your escarole account, even a very small mortgage will cost you more than that. you have to take into account all of the other expenses that go with homeownership. what if your furnace goes out? you pay to replace it, not a land loard. new roof, new ac, new window because the kids threw a ball through one, all your expense. in todays economy, renting is not a bad financial decision, and you could look into renting a small home that may give you more space and a yard for the kids. good luck, and what ever you choose, get a good idea of your expenses, find out where all of the money goes. you may be surprised.

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