Does This Sound Doable? My Only Hope (O/O SFR purchase)

Question

I have to buy a house.

FICO is 625, but only due to utilization (65%). No derogatories. Cc debt is $15K.

Soon to be ex and I have agreed to sell our house. The only encumbrance is a $45K HELOC.

My realtor sent comps over yesterday; we are in a strong seller’s market. The suggested listing price is $297,400. I am basing my thoughts on a conservative prospective sale price of $280K.

The plan is to pay off the ccs with the cash from the sale. I expect my FICO to bounce right back up in 30 days or so, yes? Our escrows are typically 45 days.

One huge problem is income. Due to a neuropathic disorder, I was down for the past three years. I literally *just* started an online teaching job as a 1099 IC. I also get a small soc sec check ($720).

Yesterday, I got even more bad news. Apparently, though my student loans ($382K) are current and on income based repayment; the lender has to use 1% of the fully amortized amount to calculate DTI.

So much for ever buying another house again in this lifetime.

After having a lot of doors slammed in my face, a local lender proposed the following scenario:

Use $125K from the sale as a DP on a $175K house and finance $50K.

Is this possible? Math is definitely not my jam.

Questions:

Wouldn’t the lack of two years of income still be a problem?

What about the student loan issue?

What kind of interest rate would be likely?

Thank you!

Joy Runzel · Answer

Thank you.

Stbx and I have been able to amicably come to terms. We’re pursuing a VA cash out refi. With so much equity, we’re pretty optimistic.

At this time, we only want to pull out $50K and pay off the $45K HELOC. We have negotiated the rest and my attorney will take it to a judge for a sign off.

Marco Bario · Answer

Hi @Joy Runzel -

Maybe avoid institutional lenders (i.e. banks or large companies like Quicken Loans). To them your situation isn't personal, either they are going to be selling the loan to an organizations such as Fannie Mae or Freddie Mac meaning it needs to fit neatly into the buyer's parameters, or they simply have internally mandated underwriting parameters which aren't flexible.

Here are my thoughts:

1) Approach potential home sellers and ask if they'd be open to seller financing. Offer a good downpayment so they have protective equity to feel secure. Seller financed interest rates are generally 3% - 4% higher than banks, but everything's negotiable. For many reasons I'm a big fan of seller financing. Happy to provide additional input in this area.

2) Approach credit unions and local banks. Many times they will provide loans where otherts won't

3) The large downpayment idea may open doors. Protective equity... if you were to default the lender has greater protection, and it's assumed the more skin you have in the deal the more motivated you are to make payments. If you want to take caqsh out of your house down the road you'd be able to as your credit profile turns around.

Hope this helps.

- Marco Bario

Does This Sound Doable? My Only Hope (O/O SFR purchase)

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