finally facing the music

iVillage Member
Registered: 04-21-2004
finally facing the music
6
Tue, 11-30-2004 - 8:22am

hello everyone! some of you here know my situatio.. but here goes. My hubby and I are in debt, with about 20kin credit cards/student loans(which are currently in defferment, hubby is still in school)and about a 10k car loan. We are being forced out of our rental home in March. We made the decision that we are going to move back to my home town and buy a house. (houses are 100k cheaper over there!! we are only looking to spend about 100k-125k for a home). Well, we both knew that we would have a huge amount of messy debt to clean up before getting a mortgage. I finally faced the music yesterday. I called a mortgage broker that specializes in bad credit and he is giving us some advice. He had me send him our credit reports (which i pulled that morning, he didn't want to do it again and lower our score even further.) My credit score is 545!!! urgh! and dh's is 627! I am so upset, but in my heart, i knew it was going to be bad. I am glad that we are facing the music now before we have our hearts set on a specific house. The mortgage broker is going to call me back to and let me know what we need to clean up first. He said it is better to start early and he can guide as to what to pay down. We have been on a strict budget and i think it's going to get stricter. I am actually kind of glad though.. we needed this kick in the butt. we now have a goal.

There are few things we have done lately that will hopefully help us get out of our mess. first of all, we are liquidating all our assets. We cashed out dh's 401k. (now, I can hear you all screaming, now!) But I felt we had to. We have got to get out from under this debt cloud! And we are also young, and can start a fresh fund, once we dig out. Last week we also cleaned out our house and sent things to a local auction. We cleared dh's garage and sold tools, a four wheeler, lots of my kitchen stuff that I don't use, collectible vases and some other stuff. We are selling everything that isn't nailed down!(like dave ramsey says). I also told the mortgage broker that we are more than willing to take second jobs and work overtime to pay this debt, and we are. I know we have a very rough road ahead, but I think we can do it. I know some of you may say "don't buy a house now while you are in debt". but the mortgage payment will be right around what we pay in rent, so why throw that money away? why not make payments toward something we can eventually own?

anyway, thanks for listening, i need to get that all off my chest..

kel

iVillage Member
Registered: 03-27-2003
Tue, 11-30-2004 - 8:59am

I fully support what you are doing! I think it's wonderful. We considered waiting until we had paid off our debt before buying a house (our rent was so cheap that our mortgage payment is $400 extra a month, and then there are utilities, repairs, etc.--it did set our debt repayment back by at least a year). But it was SO SO SO SO worth it. For one thing, once we decided to do it, having that goal was such an amazing incentive to keep plugging. The urge to spend frivolously just evaporated, because every penny I saved went into a jar for our house. Every penny I spent needlessly put us that much further from our goal. It's SO important to have a goal bigger than just paying down the debt. Our debts are not our lives, after all.

A mortgage broker that was really helpful to us was www.goodmortgage.com. They are a great company and SO helpful. And, of course, when it comes time, you'll want to check with at least a couple of brokers and probably one or two direct mortgage lenders as well. We ended up going with a local bank that would service our mortgage directly, but goodmortgage was really helpful and their terms and rates very competitive. The website also has lots of articles on cleaning up credit reports, including some techniques that actually cleared stuff off our credit report entirely.

I know the latter is somewhat controversial, and we actually didn't originally intend to have the things taken off our report altogether. But some charge-offs and things were reported as not having been paid after we paid them, and we contested that. Because they have to provide written proof within a certain number of days of your dispute, they ended up taking the bad marks off our credit altogether. It raised our score significantly immediately.

Anyway, read the articles at goodmortgage. And it's great that you have a mortgage officer who can help walk you through the process, too. For us, there were things we changed for the sake of our credit report that actually set us back a bit, but improved our score. For instance, as our credit improved we started getting offers for 0% transfers, but we never applied because we knew that every time they pull the credit report it lowers the score. This cost us probably a hundred dollars a month, but it meant getting into our house sooner and at a lower interest rate.

Now that we're in our house, we have transferred everything to a 0% card, and we take advantage again of special offers at stores and whatever that require you to sign up for their credit card but that save you money.

Anyway, I just wanted to say, in my long-winded way, that I think what you are doing is wonderful. It will really give you a reason to keep plugging. And we LOVE our house SO MUCH. I can't get over what a difference it has made in our quality of life.

Good luck and keep plugging,

Heather

P.S. Another thing you might want to do is start casually looking at houses, even asking realtors for tours. In your heart you'll know that you're not looking *for* your house yet, just looking *at* houses. But what it will do is give you a really clear idea of what is out there, what the prices are, and what you want. You can also start narrowing your search to a few neighborhoods as you find neighborhoods that you like. We started shopping about a year before we planned to buy, and fell in love with the neighborhood we eventually ended up buying in. They say it's all about location, and the best way to decide what location is best for you is just to look at bunches and bunches and bunches of houses. It will also help you clarify your needs and wants in a house, and will introduce you to a few realtors that you may or may not end up working with, but you'll have a better idea what sort of a realtor you want to work with ultimately. Just be very clear with them, and don't let them draw you into buying too soon or signing agreements with them until you know for sure what you want. They can be pushy.

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Tue, 11-30-2004 - 9:47am

Hi Kel - you know what...I don't believe that any of us should put our lives "on hold" in order to pay down debt.

All my best,
Danni

Avatar for mymartes
iVillage Member
Registered: 03-26-2003
Wed, 12-08-2004 - 11:58pm

I think you are headed in the right direction. I also agree w/the previous posters. Why wait until you are debt-free to buy a home.

My husband is the sole breadwinner. We have approximately $40k in debt. However, my husband was approved for two loans. (Construction and Mortgage). We are in the process of building a new home in PA. We currently live in NYC.

Good luck to you.

MYM

iVillage Member
Registered: 03-27-2003
Thu, 12-09-2004 - 12:46pm
Oh good idea! Dh and I have been debating about the paying off debt vs. buying a home. Currently we are living with my parents, to save money. I don't think I will return to work (I had a baby in Aug and his health isn't too good). We have approx $42,000 in debt (student loans, Visa and lines of credit). We are on the road to recovery and hearing that you are buying ahomeis inspiring!
Kiki
Running Woman
iVillage Member
Registered: 03-26-2003
Thu, 12-09-2004 - 7:13pm
Is this your first home purchase? You could have been hit with less penalties if you had used the money in the 401K as a downpayment instead of cashing it to pay debt.

Read my blog: Common Sense with Money 

 

Lilypie 1st Birthday Ticker

iVillage Member
Registered: 04-21-2004
Fri, 12-10-2004 - 10:18am

Yup, I know.. but to be honest.. we did not feel comfortable to buy the house with this much debt. We are currently in "bust it" mode (ala dave ramsey) and want to cut our total debt down by half (at least) before we buy in a few months.

kel
ps thanks for the advice though!