Bad Credit, but large downpayment = Huh

[prb]

So, I got a phone call yesterday from someone who wants to buy a house. We pulled his credit report in May, 2008, so I looked at that for now until I get a signed application form.

What do I see:
Bankruptcy, Discharged 2004, Assets $35000, Liabilities $45000

Okay, no can do until until 2010, 6 years past the bankruptcy. But if he repays the creditors I can do the deal. He has $140,000 down payment on a house so I say "pay off the creditors and you'll be fine, they'll report it to Equifax as Paid and all will be fine". But he doesn't want to.

So now instead of a 4.79% interest rate (5 year term, 25 year amortization) he's going to pay 6.79% (5 year term, 35 year amortization). And that's gonna be hard to do because he doesn't have any credit since the (obviously no one will give him a credit card, but he should be able to get a secured credit card).

[Auto]

I have no idea what you're talking about.

why don't you try again from the top, this time with some background.

[prb]

I have no idea what you're talking about.

why don't you try again from the top, this time with some background.

I'm licensed as a mortgage agent. I get a deal every now and then, it's not what I do on a day-to-day basis.

This client declared bankruptcy in 2004 and now wants to buy a house. He has not re-established credit by way of a secured credit card or car loan, etc., since then.

He wants the current discounted interest rate, but can't get it because he hasn't repaid the creditors in the bankruptcy and it has been less than 6 years since the bankruptcy. So he has to pay 2% more and spread it out over 35 years instead of 25. Paying the extra $10-15,000 to those creditors would mean getting the lower interest rate and saving $40,000 by not adding 10 years onto the mortgage plus the lower interest rate so maybe $50,000 savings by paying them off but he won't.

[Evil Queen]

Hey, PRB, that guy is an idiot.

Say it with me now Idiot;

DEBT IS BAD! Good! Now say it again! DEBT IS BAD! Excellent! Make this your Mantra and pay off those debts! You can't be "rewarded" with the lower APR if you're in so much debt!

DEBT IS BAD!

[Auto]

I'm licensed as a mortgage agent. I get a deal every now and then, it's not what I do on a day-to-day basis.

This client declared bankruptcy in 2004 and now wants to buy a house. He has not re-established credit by way of a secured credit card or car loan, etc., since then.

He wants the current discounted interest rate, but can't get it because he hasn't repaid the creditors in the bankruptcy and it has been less than 6 years since the bankruptcy. So he has to pay 2% more and spread it out over 35 years instead of 25. Paying the extra $10-15,000 to those creditors would mean getting the lower interest rate and saving $40,000 by not adding 10 years onto the mortgage plus the lower interest rate so maybe $50,000 savings by paying them off but he won't.

OK. Got it.

Although if he declared BK, why would he have to repay creditors?

Creditors who persist in trying to collect debts extinguished in BK can find themselves in legal trouble.

For what it's worth, I wouldn't lend a penny to this guy either. A real deadbeat.

[prb]

OK. Got it.

Although if he declared BK, why would he have to repay creditors?

Creditors who persist in trying to collect debts extinguished in BK can find themselves in legal trouble.

For what it's worth, I wouldn't lend a penny to this guy either. A real deadbeat.

Actually, he isn't. He's been renting a luxury apartment since 2006 at $2,500 per month And pays his bills on time apparently(no collections since then, so it looks okay)

And although he doesn't need to repay the creditors, doing so will save him $50,000.

[Nyoibo]

If you play it right filing bankruptcy can set you up fairly well.

[Bobsentme]

Ok, first off: Bankruptcy != Deadbeat.

More than likely the man owned a business (resturaunt maybe?) and had to close up shop.
Maybe even a limited liability company (those declare bankruptcy all the time, and open under new names).

You say he'll be adding $50,000 onto the mortgage, but I assume that means he pays the minimum payment every month for the length of the mortgage. If he has that much up front, he might be able to get more, and quite fast, so that he pays off the home early.

Just saying.

[prb]

You say he'll be adding $50,000 onto the mortgage, but I assume that means he pays the minimum payment every month for the length of the mortgage. If he has that much up front, he might be able to get more, and quite fast, so that he pays off the home early.

That $50,000 is extra interest paid because it's a higher rate and 35 years instead of 25 years.

Perhaps he can get some money again and use the prepayment option, but who knows.

[SuperB]

He pays more because he's a proven bad risk. Banks shouldn't have to deal with people who can't manage their money and default on their bills but they do, at a cost and rightly so.