Loan experts chime in please

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  • longbow

    Grandmaster
    Rating - 100%
    3   0   0
    Apr 2, 2008
    6,900
    63
    south central IN
    Friend who grosses 48k wants to buy a $320,000 home. He is coming out of a divorce and might have 60k to put down on the home. He has two kids with joint custody about 10k in lawyer bills and $300 car payment.

    Is it possible?

    i don't see it working.
     

    longbow

    Grandmaster
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    3   0   0
    Apr 2, 2008
    6,900
    63
    south central IN
    He wants to keep the house that him and his wife had. She made the majority of the money in the family. 48k gross is optimistic on his part and doesn't have much of a work history.
     

    Indyhd

    Master
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    16   0   0
    Jan 12, 2010
    1,915
    113
    Noblesville
    I don’t see it working either as we have a much higher gross income and together vehicle payments at $500,but no way would we take on a $260 k mortgage
     

    K_W

    Grandmaster
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    8   0   0
    Aug 14, 2008
    5,385
    63
    Indy / Carmel
    That's about $1200 a month on a 30yr not even counting taxes and insurance.

    Assuming that plus 20% off gross pay for taxes, SSI... and there's still City taxes plus personal health insurance, auto insurance, retirement amd rainy day... Leaves him under $20k for the rest of the year.
    So... NO.
     
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    bgcatty

    Master
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    23   0   0
    Sep 9, 2011
    3,021
    113
    Carmel
    Tell him no way! Then tell him to read Pete the Planner and Dave Ramsey articles. Then tell him to carefully read his divorce settlement and/or judgment because he's got to have a lot more financial liabilities vis-a-vis college savings plans, insurance, support, etc., etc. Then tell him best of luck because as the father in a divorce, prepare to have your feet held to the fire until the kids are fully emancipated. Peace! Out!
     

    Trigger Time

    Air guitar master
    Rating - 98.6%
    204   3   0
    Aug 26, 2011
    40,112
    113
    SOUTH of Zombie city
    Friend who grosses 48k wants to buy a $320,000 home. He is coming out of a divorce and might have 60k to put down on the home. He has two kids with joint custody about 10k in lawyer bills and $300 car payment.

    Is it possible?

    i don't see it working.
    It won't work. Not if he has to finance 320k.
    So is the home fairly new? No equity?

    If it were my friend I'd tell him it's now time to live below his means and have a life with his children and enjoy the time he has while they are small and still give them a quality life and LOVE which is more important than anything. Or he can become a workaholic and get a second job and have extra money to save up and wait for a better home down the road. The second job will not save him now though because it wont be established enough to be factored into a loan for the 300k house I dont think.

    I'd recomend first see if payment arrangements without interest are an option for the lawyer if so take it, if not pay that off first. So hes left with 50k cash. Does he contribute to a 401k or have credit card debt? This could change things up some with what I'd recommend. But for the sake of making it easy lets say no credit card debt (great!). Then Id recomend he find a modest home at a foreclosure auction or with motivated sellers anywhere from 70-110k max. Put down 40k on the house keeping 10k in savings for emergencies and a cushion.
    The goal being a house payment for him around $650 a month MAX. That car payment is gonna suck for him I think. Maybe he can refinance or sell it and get a cheaper vehicle?
    This will depend on what interest rate he qualifys for with the house with his credit and debt ratio

    With the $300 car payment and no other debt hes still gonna have a hard time getting financed for more than 110k even with like 40k down I think . This isnt my area of expertise or my field

    Better yet, tell him to rent an apartment and invest. And still get rid of the $300 car payment
     
    Last edited:

    jkaetz

    Master
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    3   0   0
    Jan 20, 2009
    1,953
    83
    Indianapolis
    Quick math:
    $48,000 figuring 12% in taxes leaves ~$42,240 to spend for the year and about $3520 per month

    If he has outstanding credit he's looking at about 4.5% interest and ~$190/$1000 financed. Paying off the attorney fees and keeping 10k in the bank for emergency he is financing $280000. This ends up to be about $1418/month in principal and interest only. Add in property tax, insurance, and pmi brings it to about $1900/month. So he's looking at :
    $3520
    - $300
    - $1900
    = $1320

    This will need to pay for food, gas, utilities, cell phone, cable, child support, savings, vacation, car or house repairs, etc...

    Ignoring the Dave Ramsey silliness, lenders will give the best rates if you keep your recurring monthly payments under 29% of your gross income. They will let you go up to the 40% range but you're more risky at that point and will pay more.

    As others have said, not really a good idea even if someone will lend it to him. He should be looking in the $150 - $200k max range for housing or saving up a bigger down payment.
     

    Libertarian01

    Grandmaster
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    Rating - 100%
    3   0   0
    Jan 12, 2009
    6,006
    113
    Fort Wayne
    If the $48k is optimistic let's guess that he will be nearer to $40k for planning purposes. Everything else then will be icing on the cake if true, and hopefully not too far off if false.

    I am a follower of Dave Ramsey as well, and although Dave does allow for a debt for the home your friend may not need it, or at least not much.

    Guessing from some online research the kids could cost $10k - $14k each, per year, so average at $15k as there is joint custody. I presuming he gets saddled with slightly more than half.

    So with the cost of kids take income from $40k down to $25k. This is after $0 for federal tax as the kids may(?) give enough of a tax break federally.

    Throw in cost of living, utilities, insurance etc etc etc. He has no hope in hell of making that kind of home payment.

    I would suggest taking that $60k, pay off the lawyer today. Probably pay off the car today. This will leave him with $40k to buy a home upfront with zero mortgage. If his is living in a rural area this may allow for a decent home. He could then save like hell for five (5) years, up his income, and move into a much nicer home, again with zero mortgage OR move into another moderate home and rent his old "restarter" out for better income. I have friends that bought a duplex and rented out the other side. The rental paid the mortgage, they dumped more money on top, and paid it off in a couple of years. They now own over half a dozen rentals with zero debt and a healthy income from those.

    Your friend has options, but keeping a $320k home is not one of them.

    I am sorry to hear about your friends situation and hope he does well.

    Regards,

    Doug
     

    jgressley2003

    Expert
    Rating - 0%
    0   0   0
    Feb 2, 2011
    1,041
    38
    Miami County
    Even if I was a millionaire I wouldn’t drop 320k on a house. I can understand wanting to keep it but why put yourself in that position? That is a high risk loan for your friend and the bank.
     

    Hohn

    Master
    Rating - 100%
    1   0   0
    Jul 5, 2012
    4,444
    63
    USA
    Quick math:
    $48,000 figuring 12% in taxes leaves ~$42,240 to spend for the year and about $3520 per month

    If he has outstanding credit he's looking at about 4.5% interest and ~$190/$1000 financed. Paying off the attorney fees and keeping 10k in the bank for emergency he is financing $280000. This ends up to be about $1418/month in principal and interest only. Add in property tax, insurance, and pmi brings it to about $1900/month. So he's looking at :
    $3520
    - $300
    - $1900
    = $1320

    This will need to pay for food, gas, utilities, cell phone, cable, child support, savings, vacation, car or house repairs, etc...

    Ignoring the Dave Ramsey silliness, lenders will give the best rates if you keep your recurring monthly payments under 29% of your gross income. They will let you go up to the 40% range but you're more risky at that point and will pay more.

    As others have said, not really a good idea even if someone will lend it to him. He should be looking in the $150 - $200k max range for housing or saving up a bigger down payment.

    Dave Ramsey silliness? Do tell YOUR system for financial independence?
     

    JettaKnight

    Я з Україною
    Site Supporter
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    6   0   0
    Oct 13, 2010
    26,517
    113
    Fort Wayne
    Dave Ramsey silliness? Do tell YOUR system for financial independence?

    Silliness == all debt is wrong.

    For some that might be correct, but for many it's not. Dave makes a blanket statement, which is silly. For the financially wise, some leveraging of debt (e.g. mortgage) may be wise.


    Let's not go into another, "Good Dave, Bad Dave" argument again.



    PS - the 30 year mortgage is an abomination.
     

    Vigilant

    Grandmaster
    Rating - 100%
    21   0   0
    Jul 12, 2008
    11,659
    83
    Plainfield
    Even if I was a millionaire I wouldn’t drop 320k on a house. I can understand wanting to keep it but why put yourself in that position? That is a high risk loan for your friend and the bank.
    I was in a house this weekend that was a “fixer upper” at $670000. The owner, put another $200K into the remodel, and still has another $30-50K to go. It was actually a GREAT investment, as it’s already appraised at $1.2M and he’s had cash offers to buy with the work not done for that price.
     

    Hohn

    Master
    Rating - 100%
    1   0   0
    Jul 5, 2012
    4,444
    63
    USA
    I know this member. He is doing pretty well for himself.

    Good for him. But the point is how many OTHERS are doing well based on HIS advice? Dave Ramsey has a pretty tall stack of testimonials for his methods. I'd like to think someone criticizing him has a better way in mind.
     

    Trigger Time

    Air guitar master
    Rating - 98.6%
    204   3   0
    Aug 26, 2011
    40,112
    113
    SOUTH of Zombie city
    I was in a house this weekend that was a “fixer upper” at $670000. The owner, put another $200K into the remodel, and still has another $30-50K to go. It was actually a GREAT investment, as it’s already appraised at $1.2M and he’s had cash offers to buy with the work not done for that price.
    Good investments are out there. Anytime you can make money off your money while you are sleeping, it's a good thing
     
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    Trigger Time

    Air guitar master
    Rating - 98.6%
    204   3   0
    Aug 26, 2011
    40,112
    113
    SOUTH of Zombie city
    I dont understand the mindset that we have in this country with debt. Some people think because they qualify for more they MUST spend that amount. Well why not spend/borrow UNDER what you qualify for and have a comfortable life and alittle security if you have an emergency? If you miss one paycheck and are gonna be sideways in life because you've borrowed so much then you are doing it wrong. In my humble opinion. I'm not rich, I'm not successful, im just a regular dude but that's my opinion.
     
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