Posted on: 12th Jun, 2008 08:07 pm
Hello,
I am a newbie here at the forum. I've done a search on this topic, but didn't find any situations quite like mine, so I hope you don't mind my question.
Long story short:
In 2004, I began having some major medical issues and was unable to work for a 1.5 years. Because of the loss of my income, my husband and I declared Chapter 7 bankruptcy in 11/04 and were discharged in 2/05. When we declared BK, our student loans ($26,000 and $39,000) automatically went into forbearance, and we’ve kept them in forbearance since then so we could save some money in case a rainy day hit once again.
Fast forward 3+ years:
We are now back on our feet again financially, and we're hoping to buy our first home later this year. We assumed that we needed to put our student loans back into repayment so that potential lenders would see that we are paying our loans again. However, when I called Direct Loans (U.S. Dept. of Education) to do so, I was counseled against it. This obviously came as a big surprise! Basically, I was put on the phone with a veteran student loan officer, and he told me that banks typically do not consider it negative when student loans are in forbearance. He was most concerned about the interest charges that had accumulated in the past 3+ years, and the fact that they would be capitalized the minute we went back in repayment. In other words, we'll be paying interest on interest. He strongly recommended that we both stay in forbearance for as long as it takes to pay off the accumulated interest in order to prevent it from being capitalized. (He also actually recommended that I apply for an economic hardship deferment based on my low income and back date it 12-18 months in an attempt to override the current forbearance and shave off a few thousand in previous interest charges—but that’s another topic altogether.)
Our dilemma:
Our biggest concern is that we already have a big strike against us with the bankruptcy, so we don't want to do anything else to jeopardize our changes at getting a home loan. However, if banks truly don't care if our student loans are in forbearance, it would save us a lot of money if we stay in forbearance while paying off the accumulated interest as the loan officer suggested. Obviously, we'll be discussing this with potential banks, but I’d really appreciate all of your opinions on this!
Here’s a bit more information about our situation in case it influences your answer:
*Our credit scores range from 672 to 743 (my scores are 681-683-719 and my husband’s are 672-735-743), which is pretty good considering the BK.
* My husband's parents will be gifting us the money for our down payment ($40K = 23%), so we're hoping this will help our chances at purchasing a home in the $160K-$170K range (loan amount of $120K-$130K).
* My husband just started a new job in March after having been laid off last October (along with 300 other people). He makes $49K per year gross.
* I’ve been self-employed since July 2006. My 2006 tax return shows a slight loss because of start-up costs; my 2007 tax return shows a profit of $7,000 after deductions; I am currently pulling in around $1,500-$2,000 before taxes each month. We're planning to submit information on my income for the loan, but we don't expect it to have much impact.
* Debts: No credit card debt; 2 car payments (each $250), but one will be paid off in less than 9 months. Student loans will total around $500/month when we go into repayment.
* We will only consider a 30-year fixed mortgage; no ARMs. Willing to pay 1-3 points to get interest rate in the 6% range.
I look forward to hearing your opinions! Thanks in advance.
Best regards,
Becky
I am a newbie here at the forum. I've done a search on this topic, but didn't find any situations quite like mine, so I hope you don't mind my question.
Long story short:
In 2004, I began having some major medical issues and was unable to work for a 1.5 years. Because of the loss of my income, my husband and I declared Chapter 7 bankruptcy in 11/04 and were discharged in 2/05. When we declared BK, our student loans ($26,000 and $39,000) automatically went into forbearance, and we’ve kept them in forbearance since then so we could save some money in case a rainy day hit once again.
Fast forward 3+ years:
We are now back on our feet again financially, and we're hoping to buy our first home later this year. We assumed that we needed to put our student loans back into repayment so that potential lenders would see that we are paying our loans again. However, when I called Direct Loans (U.S. Dept. of Education) to do so, I was counseled against it. This obviously came as a big surprise! Basically, I was put on the phone with a veteran student loan officer, and he told me that banks typically do not consider it negative when student loans are in forbearance. He was most concerned about the interest charges that had accumulated in the past 3+ years, and the fact that they would be capitalized the minute we went back in repayment. In other words, we'll be paying interest on interest. He strongly recommended that we both stay in forbearance for as long as it takes to pay off the accumulated interest in order to prevent it from being capitalized. (He also actually recommended that I apply for an economic hardship deferment based on my low income and back date it 12-18 months in an attempt to override the current forbearance and shave off a few thousand in previous interest charges—but that’s another topic altogether.)
Our dilemma:
Our biggest concern is that we already have a big strike against us with the bankruptcy, so we don't want to do anything else to jeopardize our changes at getting a home loan. However, if banks truly don't care if our student loans are in forbearance, it would save us a lot of money if we stay in forbearance while paying off the accumulated interest as the loan officer suggested. Obviously, we'll be discussing this with potential banks, but I’d really appreciate all of your opinions on this!
Here’s a bit more information about our situation in case it influences your answer:
*Our credit scores range from 672 to 743 (my scores are 681-683-719 and my husband’s are 672-735-743), which is pretty good considering the BK.
* My husband's parents will be gifting us the money for our down payment ($40K = 23%), so we're hoping this will help our chances at purchasing a home in the $160K-$170K range (loan amount of $120K-$130K).
* My husband just started a new job in March after having been laid off last October (along with 300 other people). He makes $49K per year gross.
* I’ve been self-employed since July 2006. My 2006 tax return shows a slight loss because of start-up costs; my 2007 tax return shows a profit of $7,000 after deductions; I am currently pulling in around $1,500-$2,000 before taxes each month. We're planning to submit information on my income for the loan, but we don't expect it to have much impact.
* Debts: No credit card debt; 2 car payments (each $250), but one will be paid off in less than 9 months. Student loans will total around $500/month when we go into repayment.
* We will only consider a 30-year fixed mortgage; no ARMs. Willing to pay 1-3 points to get interest rate in the 6% range.
I look forward to hearing your opinions! Thanks in advance.
Best regards,
Becky
Hi becky.
Welcome to the forum.
Your and your husband's score is good and both of you have good income. So you can get approve for a mortgage. But I would suggest you to try and pay off the student loan ASAP if it is possible. Because interest will increase day by day if don't pay it soon. As you have taken then loan you have the responsibility to pay it off ... right. And if you pay off the student loan then it will have a positive impact on your credit report.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Welcome to the forum.
Your and your husband's score is good and both of you have good income. So you can get approve for a mortgage. But I would suggest you to try and pay off the student loan ASAP if it is possible. Because interest will increase day by day if don't pay it soon. As you have taken then loan you have the responsibility to pay it off ... right. And if you pay off the student loan then it will have a positive impact on your credit report.
Feel free to ask if you have any further questions.
Best of luck,
Larry
Hi Becky,
Forbearance on your student loan may or may not affect depending upon the total debt you have. The lender looks into the entire financial situation - how much you owe on your credit cards, personal loans, student loans etc. Since the student loan is not your only debt, therefore I think what's important here is your debt-to-income ratio. After all, you'll pay off the interest, isn't it? But when are you going to pay the principal? is it that you'll keep it pending for a long time? I also feel that the car payments won't affect much because you'll try to pay them within the next few months.
Your credit scores are good and the down payment is appreciable. So, yes, I do see good chances of getting a mortgage. But again it depends upon the lenders.
Good luck and feel free to discuss further :)
Forbearance on your student loan may or may not affect depending upon the total debt you have. The lender looks into the entire financial situation - how much you owe on your credit cards, personal loans, student loans etc. Since the student loan is not your only debt, therefore I think what's important here is your debt-to-income ratio. After all, you'll pay off the interest, isn't it? But when are you going to pay the principal? is it that you'll keep it pending for a long time? I also feel that the car payments won't affect much because you'll try to pay them within the next few months.
Your credit scores are good and the down payment is appreciable. So, yes, I do see good chances of getting a mortgage. But again it depends upon the lenders.
Good luck and feel free to discuss further :)
Thank you both for your replies!
We're going to begin repaying the loans one way or another. It's just a matter of whether we keep them in forbearance while we're paying off the extra interest so it doesn't get capitalized and make our principals even larger. Who wants to pay interest on interest, right? The idea is that we'd keep the loans in forbearance until we pay off the accumulated interest, and then we'd begin paying the principal again.
As far as paying OFF the loans, well, that's going to take quite a while. They're $26K and $39K, so that's no chunk of change!! The interest that has accumulated while in forbearance is $6800 and $7200.
Only one of our cars will be paid off within 9 months; the other still has a couple of years left, so it will count toward our debt-to-income ratio. I've been through the calculations for both the front-end ratio and the back-end ratio, and I think we'll be OK if we can get a decent interest rate. Worst case scenario, I'm hoping we can at least qualify for an FHA loan!
The main thing I'm trying to nail down at this point is whether typical lenders will look at our forbearances as negatives when we go to apply for a loan. You don't think this will be an issue?
Thanks again for your help!
Angela
We're going to begin repaying the loans one way or another. It's just a matter of whether we keep them in forbearance while we're paying off the extra interest so it doesn't get capitalized and make our principals even larger. Who wants to pay interest on interest, right? The idea is that we'd keep the loans in forbearance until we pay off the accumulated interest, and then we'd begin paying the principal again.
As far as paying OFF the loans, well, that's going to take quite a while. They're $26K and $39K, so that's no chunk of change!! The interest that has accumulated while in forbearance is $6800 and $7200.
Only one of our cars will be paid off within 9 months; the other still has a couple of years left, so it will count toward our debt-to-income ratio. I've been through the calculations for both the front-end ratio and the back-end ratio, and I think we'll be OK if we can get a decent interest rate. Worst case scenario, I'm hoping we can at least qualify for an FHA loan!
The main thing I'm trying to nail down at this point is whether typical lenders will look at our forbearances as negatives when we go to apply for a loan. You don't think this will be an issue?
Thanks again for your help!
Angela
Hi Becky,
Welcome back.
Forbearance will have a negative impact on your credit. But your credit is good and both of you have a steady source of income. At the same time you have the money for the down payment. So I think you can get approved for a mortgage.
Have you shopped for lenders? If not then I think you need to do it and check out if someone can offer you affordable rates and terms. FHA is a good option for you.
BTW you can request for no-obligation free mortgage quote from the community lenders.
Hope someone will help you out.
Best of luck,
Larry
Welcome back.
Forbearance will have a negative impact on your credit. But your credit is good and both of you have a steady source of income. At the same time you have the money for the down payment. So I think you can get approved for a mortgage.
Have you shopped for lenders? If not then I think you need to do it and check out if someone can offer you affordable rates and terms. FHA is a good option for you.
BTW you can request for no-obligation free mortgage quote from the community lenders.
Hope someone will help you out.
Best of luck,
Larry
Hi Becky,
Some lenders may consider the forbearance as something negative just because you plan to pay the principal after a while. However, the positive thing is you have a plan as to when you can actually start paying off the principal. That's what you need to explain to your lender so that he doesn't feel that paying both loans would be a problem for you.
You can begin with contacting FHA lenders and having a talk with them regarding your loan options and the factors they are likely to consider. Since it's more than 3 years that you are discharged from bankruptcy Chapter 7, therefore you are likely to get better rates on FHA loan. One more thing that I'd like to say is, the FHA does not prefer late payments for past 1 year of applying for loan.
Regards,
Jessica.
Some lenders may consider the forbearance as something negative just because you plan to pay the principal after a while. However, the positive thing is you have a plan as to when you can actually start paying off the principal. That's what you need to explain to your lender so that he doesn't feel that paying both loans would be a problem for you.
You can begin with contacting FHA lenders and having a talk with them regarding your loan options and the factors they are likely to consider. Since it's more than 3 years that you are discharged from bankruptcy Chapter 7, therefore you are likely to get better rates on FHA loan. One more thing that I'd like to say is, the FHA does not prefer late payments for past 1 year of applying for loan.
Regards,
Jessica.
Thanks to all of you for your advice! We're planning to begin contacting lenders in the near future, so this information will really help.
Thanks again!
Becky
Thanks again!
Becky
Hi Becky,
You are most welcomed and it is our pleasure that we can help you :)
BTW keep us posted and feel free to ask if you have any further questions.
You are most welcomed and it is our pleasure that we can help you :)
BTW keep us posted and feel free to ask if you have any further questions.
Becky,
You have not received good advice so far. I would advise you to do the loan in Just your Husbands name and do a conventional loan with 10% down with no PMI or Lender Paid Mortgage Insurance.
You should pay off the cars with the extra 10% Gift. This will greatly increase your cash flow and help you to stay out of debt.
The loans in Forbearance should not negatively affect you. You will have to qualify with the debt against you even if it is in forbearance. So include the $500. in your debt ratios. With a base salary of your husband and the debt you have stated you should be able to qualify.
Lastly DO NOT pay points. Take that money and apply it towards your student loans.
You have not received good advice so far. I would advise you to do the loan in Just your Husbands name and do a conventional loan with 10% down with no PMI or Lender Paid Mortgage Insurance.
You should pay off the cars with the extra 10% Gift. This will greatly increase your cash flow and help you to stay out of debt.
The loans in Forbearance should not negatively affect you. You will have to qualify with the debt against you even if it is in forbearance. So include the $500. in your debt ratios. With a base salary of your husband and the debt you have stated you should be able to qualify.
Lastly DO NOT pay points. Take that money and apply it towards your student loans.
The reason for doing it in your husbands name is because he has best credit score. FHA has MIP which increases your closing costs and monthly payment. With credit scores that good you should go conventional if you are putting 5% or more down.
Hi ulch.
Welcome to the forum.
You have asked or suggested Becky to do a conventional loan with 10% down with no PMI. But as far as I know if some is making less than 20 percent down payment then he has to pay the PMI. Isn't it? So if Becky makes less than 20 percent down then I suppose she will have to pay the PMI.
Best of luck,
Larry
Welcome to the forum.
You have asked or suggested Becky to do a conventional loan with 10% down with no PMI. But as far as I know if some is making less than 20 percent down payment then he has to pay the PMI. Isn't it? So if Becky makes less than 20 percent down then I suppose she will have to pay the PMI.
Best of luck,
Larry
Hey Larry,
Thanks for the welcome. There are many different ways to avoid paying PMI. She could do an 80-10-10 or do one loan @ 90% LTV with Lender Paid MI. The rate will be exactly .25% (at 90%LTV)higher than a loan with monthly PMI. Almost every Lender offers LPMI to applicants with High credit scores.
I am a Loan Officer at Countrywide. We call it our TAMI product. Tax Advantage Mortgage Insurance. The reason is that until recently PMI wasn't Tax Deductible.
Kindest Regards,
Michael
Thanks for the welcome. There are many different ways to avoid paying PMI. She could do an 80-10-10 or do one loan @ 90% LTV with Lender Paid MI. The rate will be exactly .25% (at 90%LTV)higher than a loan with monthly PMI. Almost every Lender offers LPMI to applicants with High credit scores.
I am a Loan Officer at Countrywide. We call it our TAMI product. Tax Advantage Mortgage Insurance. The reason is that until recently PMI wasn't Tax Deductible.
Kindest Regards,
Michael
Hi Ulch,
Welcome to our forums.
It's good to know that you are from the industry. let's hope that community will be able to gain a lot of knowledge from your experience. By the way, you've spoken about 90% LTV loans? are they really available other than the ones offered by the FHA, considering the credit crisis and its after effects.
Welcome to our forums.
It's good to know that you are from the industry. let's hope that community will be able to gain a lot of knowledge from your experience. By the way, you've spoken about 90% LTV loans? are they really available other than the ones offered by the FHA, considering the credit crisis and its after effects.
Hey Carol,
Yes Conventional loans are available up to 95%. There are some areas that are deemed declining markets which lowers your LTV usually buy 5%.
FHA, USDA, and VA are the only loans out there that let you structure 100% financing.
But to answer your question, Yes Conventional Loans are readily available up to 95% LTV. Technically we can do 97% conventional, but it is getting hard to find Mortgage Insurance on them.
Yes Conventional loans are available up to 95%. There are some areas that are deemed declining markets which lowers your LTV usually buy 5%.
FHA, USDA, and VA are the only loans out there that let you structure 100% financing.
But to answer your question, Yes Conventional Loans are readily available up to 95% LTV. Technically we can do 97% conventional, but it is getting hard to find Mortgage Insurance on them.
Caron,
I am sorry for calling your Carol. That is a very unique name. I like it.
I am sorry for calling your Carol. That is a very unique name. I like it.
Ulch, I have a question.
If I am having a problem qualifying for mortgage due to my high debt to income ratio (about 50%), would including my wife of the loan who has no income yet and a sizable student loan debt in forbearance help since she will be starting her career in 6 months or so?
If I am having a problem qualifying for mortgage due to my high debt to income ratio (about 50%), would including my wife of the loan who has no income yet and a sizable student loan debt in forbearance help since she will be starting her career in 6 months or so?