Is there a loan out there for me?

TinkerTartMarch 21, 2012

Hello, I'm an old regular from the rose forum but it's been a while and I forgot my username/password so I'm starting new. :) I'm in Texas.

I'm in a bit of a predicament... my husband has recently left us, and we (two daughters and I) are needing to move out of our home and into a less expensive one. Husband has agreed to buy out my portion of our present home, and is refinancing in his own name with a cash-out of $35k for my half of the equity. This money should be available to me within the next month, free and clear.

I have a part time job at $11k per year, and a small home business that showed a loss on tax returns the last few years. (It brings in an income, but claiming my home office, etc has allowed for several large deductions.) My credit score is 744-771. Because we aren't legally divorced, I am still considered liable for my husband's mortgage, PLUS I am not able to claim the child support he gives me because it isn't "official".

He has no plans to pursue divorce for at least a few months, and it wouldn't be finalized for who-knows-how-long. I simply can't wait around for that, and I refuse to initiate divorce myself.

I want to purchase a repo that I've found which I consider to be an excellent value and perfect for my girls and I. It's a fixer-upper and I think I could get it for $80-$90k. I'm afraid that if I wait too long, it will be gone and I'll have missed my chance and will be forced to rent an apartment or house for much higher monthly costs.

I have the ability to put 30% down on this house, but almost no income that I can document. I have the ability to easily afford the monthly note on the house, though I can't seem to prove that in a way that will satisfy a lender.

In addition to this, over the next few months when my husband does initiate the divorce, I will receive half of his 401k savings which I can cash out to the tune of $65-75k (minus taxes).

So knowing all of this... my question is, what type of mortgage, if any, could I possibly qualify for? Is there some sort of short-term or no-doc loan that I could get to buy the house now, and then refinance with more money once my 401k cash-out arrives, or once the divorce is final and I don't have his debts (mainly the present home) weighing against me? Any creative problem-solving welcome!

Please help... I'm not qualifying as things are with an FHA because my debt/income ratio is too high. I feel that if I could just get moved and settled on my own, I can deal with all of the other hardships involved in this in due time. Thank you for your wisdom and help!

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I'm sorry to hear about your separation. That has to be difficult. Have you looked into buying a home with seller financing/contract for deed/rent-to-own? My sister bought a little $40,000 house and since the foundation was bad (old house) she was unable to get financing so she just paid the owner for almost 10 years. She just sold it for about $20k to a company that buys a lot of repos and she made about 10k profit. Not a ton of money but more than some people are making from their home sales these days.

Or you could consider renting for a year and waiting until you get the additional 60k. If you were willing/able to spend some of that 35k you could probably get a pretty cool rental house, maybe with some fun extras that would make the transition less difficult for everyone. With so many changes and stresses going on it might be a bit much to jump into home ownership right away. Sometimes I think it would be nice to pick up the phone and call the landlord to deal with all of the annoying and expensive problems!

That stinks that you can't claim the child support as income. Is the child support court ordered? If it is I would think you could use that as proof, but I'm not sure.

    Bookmark   March 21, 2012 at 3:05AM
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Are you sure you want to do this now? If you aren't divorced and buy a house, then you will have to list the house as an asset, won't you? and your husband may muddy the divorce waters by claiming half of it, since it will be purchased 'during the marriage'--legally, at least. It seems far, far safer to me, to rent something affordable for the time being, take at least a portion of the rent as a business expense on your taxes, and wait to buy the house until AFTER the divorce is final.

I'm no lawyer--that's just how I read the situation. Before you do anything at all, You probably want to run it past YOUR lawyer to make sure you won't be complicating the divorce procedings exponentially by buying at this time. Good luck.

    Bookmark   March 21, 2012 at 8:06AM
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"my question is, what type of mortgage, if any, could I possibly qualify for? "

Unfortunately, you aren't going to qualify for any mortgage. The 30% down is pretty minimal for a "self employed" loan and most lenders are looking for 40%. Every lender is looking at income. If you have no income, you won't get a loan.

So, you are limited in your options right now. Your best course would be to find a place to rent until the divorce is finalized. At that point, your 30% down and child support will likely be enough to qualify for a small mortgage. Unless you are over 59.5, I would NOT be cashing out a 401k. The taxes and penalties are incredible. That amount will put you in the 25% bracket PLUS there is a 10% penalty. Don't volunteer to give the government 1/3 of your money. Just make the mortgage payments and keep the retirement savings intact if at all possible.

Also, a GREAT rule of thumb is to not make any major decisions within 1 year of a life changing event. Emotions and stress levels are flying high and nobody makes their best decisions in those circumstances. Just press pause on life and wait this out for a bit. Don't make any big purchases or investments. Don't lock yourself in to any long term commitments. Just keep your money safe and sound and let a little time pass. There is no substitute for time when it comes to these type of life changing events.

    Bookmark   March 21, 2012 at 8:58AM
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I would not vacate the current home with your children until the divorce is done. Don't fall for the "unofficial" CS. Get it immortalized by the court. He should want that done too since any "unofficial" funds would be considered gifts and not CS.

As to the housing issue: I would wait until things are settled before I obligated myself to buying a new house. Then you will have a clearer view of your finances. I also would not cash out your half of the 401K. You are going to need it and you'll lose a lot to taxes. It can be transferred tax free by a QADRO (sp?) in your divorce docs and will be worth more if you leave it in a retirement account. Just make sure the transfer is done from 401K directly into your retirement account (set one up if you need to) otherwise taxes could be triggered. Do not take funds from his account and expect to deposit them yourself into your retirement account.

    Bookmark   March 21, 2012 at 10:46AM
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Unless you have substantial retirement accounts of your own and are over 59 1/2 I would not cash out the 401(k). You will need it for your own retirement.

In your situation I would rent.

As far as the divorce, I strongly suggest you consult with an attorney in your state as to your options. If you don't want to file for divorce, depending on your state law, you should ask if there are other options to nonetheless receive child support, etc. in the meantime given the separation. You really need legal advice.

    Bookmark   March 21, 2012 at 12:07PM
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Talk with your divorce attorney.

    Bookmark   March 21, 2012 at 3:28PM
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Thanks for the help everyone. Looks like I may have to rent. I hate that... I have the down payment now but if I have to use that money to rent for the next year it will be gone and my chance of buying a home will be very slim.

I agree with the 401k comments... much better to save it for retirement. However, I have kids to raise and have been a stay-at-home mom for 16 years, so I may have to crack that egg open for survival. I'm 34 years old so I would hope to be able to start over with retirement once I'm back on my feet again. I know that in the event of a divorce, the alternate payee has the option to cash out their share without the 10% penalty, though I'd still have to pay taxes on it.

Unfortunately in Texas there is no legal separation. Only "together" or "divorced". That makes it really hard for people like me who do not want to pursue divorce, but need to protect themselves legally.

There are some very wise nuggets of advice here - I appreciate it! My parents (bless them!) are considering purchasing the house with a mortgage of their own, and then selling it to me. I could pay them back their down-payment immediately, and then either rent-to-own or buy it from them once the dust has settled. This would keep my husband's name off the title (community property state) and make things less complicated as well.

    Bookmark   March 22, 2012 at 8:02PM
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Texas not only is a community property state, there is no such thing as alimony, but there is "temporary support" for a spouse who has been out of the workforce - unfortunately, that won't happen until legal papers have been filed - however, the father should be paying something towards supporting the kids - again, until papers have been filed there is nothing "legal" to list as funds.

If you can set up your share of the 401K to be paid to you over several years time then the tax burden will be much smaller (but that won't help you with a down payment on a house or paying mostly cash for a house).

Try to find either an owner finance, rent to own, or someone who is zooming in on foreclosure - maybe you can 'take over' their house/payments.

    Bookmark   March 22, 2012 at 10:43PM
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If you use the money for a down payment won't you still have to come up with money to make the mortgage payments? Can't you find something that you can rent without touching your cash?

    Bookmark   March 22, 2012 at 10:56PM
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I guess I'm not understanding why you won't file for divorce. Since there is no at fault in Texas it doesn't really matters who files.

If the reason you won't file is because you think things might change then I wouldn't go and buy a house as if you do work things out then you have an extra house to deal with or your parents does.

    Bookmark   March 22, 2012 at 11:12PM
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You really need to get legal advice if you aren't getting any.

With regard to your parents buying the house I'm not sure if they can qualify for a regular mortgage if they aren't going to be occupying the house. They need to get clarity on that as well. I'm not sure how the loan differs if they won't be the ones occupying the house.

    Bookmark   March 23, 2012 at 1:05AM
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You need legal and financial advice. You do not have the financial wherewithall to own a house right now. It may not be wise either since it could muddy the divorce. An annual income of $11000 needs to cover your needs and your daughters' needs until you know what your child support will be and how well your ex husband meets his obligations. You do not want to spend on a house and all the other costs that go with that in such limited financial straits.

Slow down. Don't move until you are required to do so. Then find a small rental than you can afford, if that is possible, when you are requred to move.

    Bookmark   March 23, 2012 at 2:37AM
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