Hello, Group! I have poor credit due to events of a worker's comp injury. I have my settlement but cannot get a mortgage (except for very lousy 30-year 9% mortgage from a lender with 50% down) because of my poor credit, even though I have enough to buy the house outright which is $200,000. Should I just buy the house outright and save all of the hassle? Any Advice Appreciated!

Fr_Chuck

I would say if you can pay 1/2 down you should have people begging you to borrow money from them. I would search around with other lenders.

But also I don't know where you live but here 200,000 would be the best house in the country club. Here for example 100,000 would buy you a 3 bedroom brick home on an acre house.

ScottGem

I would agree to shopping around. If, however, you can't find a good rate, I would consider paying cash and then getting a Home Equity loan. As long as the you have more equity in the home than debt, you shouldn't have too much trouble getting a decent mortgage.

CaptainForest

mz2richard,

Shop around for a loan.

This one corporation had to go to 9 different banks until they got a loan that did not have to be guaranteed personally by the owner.

The loans are out there, you just have to do the shopping for them.

And if you don’t want to do the shopping, then perhaps as Scott has suggested, you should look into a Home Equity loan.


Wow.

Where I live, the average house price is $450,000 CDN (approximately 390,000 USD). For us, that is an increase of about 250% since we moved in. Don’t you just love the housing boom?

Honestly, I think most properties are over valued…but that is a whole other story.

Tommyp!972

thats what i just did with my house,,,paid it in full so i'd have no mortgage...why should you pay 50-100% more for your home when you can own it outright...that $200,000 house will end up costing you $400,000 or more because of your credit when your mortgage is paid up....pay the house off now while you can and have the peace of mind knowing you will always have a home as long as you pay your taxes....i will never regret having my paychecks now to spend on other things instead of worrying about a mortgage....which by the way on your credit would have been high payments

ScottGem

While I agree with Tommy to a large extent there is another factor to be considered here. Since Mortgage Interest is tax deductable you have to weigh what you can earn on the money against the cost of the money. For example, if you could get 7-10% return by investing the money, against a similar cost, with the tax deductibility you actually come out ahead.

mz2richard

Thank you for all of your replies. I was truly thinking of paying off in full, then obtaining a home equity loan, if wanted/needed, at a much lower rate. Does anyone know if Home Equity Loans are tax deductible? The problem is our credit is shot because of medical problems over the past few years which have now been taken care of and back on track, but the lending companies don't care about that issue. I just don't see how I can "win" with paying half down and still getting nailed with 8+ % and not to mention $5k plus on the loan origination fees.

Dr D

If your credit is bad enough to warrant a 9% rate with a 50% LTV, the rate on a home equity loan will be no better. I would advise you to go ahead and pay cash for the house. Then spend some time to repair your credit. Have any errors corrected, and reestablish some good credit, even if it means getting a secured credit card with high fees and rate. Pay the balance off monthly and the rate won't matter. The mere passage of time since the derogatory credit will improve your scores. At some future time when your scores have improved sufficiently, you should be able to get a Home Equity Line Of Credit from one of the commercial banks (Chase, B of A, etal). On their variable rate products they may offer prime rate (now at 7.75%) + 1%, + .5%, + 0%, -.5%, depending on the LTV and other factors. Their fixed rate products are generally higher. The great thing about banks, as opposed to mortgage companies, is that they will usually will have $ 0 closing costs.

The interest on a HELOC should be tax deductible provided that you don't borrow more than the value of the property.

VegasRealEstate

I would not encourage taking $200,000 and buying a home. That $200,000 is now doing nothing for you. Do you have any family members willing to co-sign with you for the home. I personally would use that $200,000 and buy a couple of homes. I know you are having problems buying a home for yourself (possibly your family), but you also have to look long term. What is the best use of that $200,000, meaning, do I spend the entire amount and buy one home or do I buy maybe 2 or 3 homes.

After 5 years, that $200,000 cash you have could be doubled in real estate equity.

This is just my opinion.

ScottGem

I have to question what Vegas is saying here. While I agree with him about looking at the best use of the $200K, I'm not sure his recommendation is the best use. I also disagree with finding a co-signer. I think that is too much to ask even a family member.

I find it paradoxical that he says the $200K would be doing nothing, then suggests investing it in real estate. Well what is a home but real estate? If buying 2 or 3 houses will appreciate in value, won't buying one house appreciate also? Even in some areas, $200K is not going to get 2-3 houses outright. This means having to get at least partial financing which is the problem that prompted the question in the first place. There is also the issue of managing the properties. They would have to be rented during the 5 years he suggests and that has its own problems and responsibilities.

While the advice might make sense in some situations, I don't think it applies here.