Buying a house/poor credit due to medical bills

[DumboPrincess]

Please give me your best advice! We are living in a home that belongs to my parents, but it's time to move out (no immediate date, but for my parents financial well being they need to sell this house. Completely understand, and on board with this!) We need a bigger home and would like to live in the neighborhood that my daughter's school is in. We have found a house that fits the bill--great families on the street, girls for my girls to play with, walking distance to school. Overall great location and good, solid, older home. This is our ideal house.

We can afford it from the standpoint that we have 0 credit card debt, no car payments (drive older cars, paid off for awhile), and plenty of $ every month for mortgage payments (at least $2000, could be more). That amount still leaves us $ to save, to spend and pay for food, electric, cable, etc.

We do not have a lot saved toward a down payment, but do have a condo to sell. I do not have time to sell it before getting this house, though. That mortgage is less than $600 a month.

Several years ago, my daughter had major health issues and our insurance dropped us while we were in the hospital. She has bounced back, but we were unable to pay all her medical bills (thousands upon thousands). We utilized credit cards and what cash we had (we both make more $ now). All the credit cards have been paid off, but we are left with unpaid medical collections on our credit.

Thanks for sticking with me this long. How can I get pre approved for a mortgage with our credit the way it is? I have been making phone calls and one banker told me we qualify for a mortgage that would more than cover the house we want, but couldn't approve us because of no down payment and credit. Thanks for your insights as we travel this journey!

 

[DumboPrincess]

If it helps to know this--our mortgage is always on time condo) and I've owned it for 10 years. Our car payments when we had them were always on time, as well.

 

[ancestry]

I don't want to be the bearer of bad news but I don't think you are going to be able to overcome this in short order. Since the mortgage fall out banks are very tight with giving money. They are holding borrowers to stricter criteria and considering you owe the hospital money and have bad credit from not paying the medical bills you probably don't meet their criteria. Further, depending on what state you live in, the banks won't give you a mortgage because once you own property the hospital may be able to put a lien on your house for the money you owe them (the laws on this vary from state to state as to whether or not a creditor can attach your wages or put a lien on your property).

If this was before the mortgage fall out you probably would have been able to find a lender but right now based on what you have written you are too high of a risk for a mortgage and you have no down payment. Even people with perfect credit who have no down payment are currently being denied. Had you paid off all of the medical bills and only had late/slow pays on your credit you might be able to explain that but a bank isn't going to give you a mortgage when you owe a hospital thousands and thousands of dollars (yours words).

Further if I understand you correctly you are basically saying you have no intention on paying off your daughters medical bills. Am I correct on that understanding or have I misunderstood? If I am correct in the way I took what you wrote that alone would make any bank run fast in the opposite direction as you are basically saying that you have no intention of paying off your debts. From a creditors point of view that doesn't sounds like someone they would want to lend money to. KWIM? I'm not trying to be mean or harsh but trying to look at it from the potential mortgage lenders point of view. They probably are thinking if she refuses to pay the hospital what she owes them them she may never pay us what she owes us especially if a foreclosure or something would happen in the future.

 

[canopynut66]

Please give me your best advice! We are living in a home that belongs to my parents, but it's time to move out (no immediate date, but for my parents financial well being they need to sell this house. Completely understand, and on board with this!) We need a bigger home and would like to live in the neighborhood that my daughter's school is in. We have found a house that fits the bill--great families on the street, girls for my girls to play with, walking distance to school. Overall great location and good, solid, older home. This is our ideal house.

We can afford it from the standpoint that we have 0 credit card debt, no car payments (drive older cars, paid off for awhile), and plenty of $ every month for mortgage payments (at least $2000, could be more). That amount still leaves us $ to save, to spend and pay for food, electric, cable, etc.

We do not have a lot saved toward a down payment, but do have a condo to sell. I do not have time to sell it before getting this house, though. That mortgage is less than $600 a month.

Several years ago, my daughter had major health issues and our insurance dropped us while we were in the hospital. She has bounced back, but we were unable to pay all her medical bills (thousands upon thousands). We utilized credit cards and what cash we had (we both make more $ now). All the credit cards have been paid off, but we are left with unpaid medical collections on our credit.

Thanks for sticking with me this long. How can I get pre approved for a mortgage with our credit the way it is? I have been making phone calls and one banker told me we qualify for a mortgage that would more than cover the house we want, but couldn't approve us because of no down payment and credit. Thanks for your insights as we travel this journey!

Been in banking and credit for years (30) and your not going to get a mortgage with medical debts on your credit report lenders see this as a garnishment waiting to happen (that does depend on your state) or a lien. Will need to pay those off no matter how large or small and the re-apply

 

[Hannathy]

sell the condo and repay or have repaid most of the hospital then start looking again.

Or why don't you just buy the house you are in from your parents. They can give you a mortgage and get money from you if that is what they need.

Have you at least set up a payment plan with the hospital and listed the condo? I would think you would need to have done both of those things before a lender would even think about meeting with you (as they should).

I didn't see in your list of expenses how much are you paying the hospital per month? Personally I don't think you should get a mortgage until you have at least started to pay off the hospital, and made a good dent in the amount.

 

[Marionnette]

It doesnt sound very favorable for you. Bad credit plus no down payment plus unpaid bills plus the existing mortgage on another house. Maybe you should move back into the condo while it is on the market. That will allow your parents to sell there place regardless of your situation. And then you should pay down the medical bills. Then set aside a down payment for the new house. Your not in a position to be buying a house in this market.

 

[Molliday]

I would stay put, save money, and work on your credit. I know it's not what you want to hear, but the mortgage industry is a tough nut to crack right now.

Your lack of down payment (plus, you'll need money for pre-paids) and credit issues are your two biggest obstacles. Even with good credit, 100% financing is pretty much a thing of the past.

Underwriting for mortgage loans has gotten crazy-tight in the past year. People need three things to qualify for mortgages right now: money down - qualifying debt-to-income ratios (depending on the type of loan) - and good credit. If even one of those is missing, you're going to have trouble.

 

[Happiest mommy]

Marrionette you hit it right on the nose OP this is exactly what you should do, now is not the time to buy a house, start trying to pay down the medical bills.

 

[Planogirl]

How old are these collections?

You said that your parents need to sell their house for financial reasons. It sounds like they might not be able to owner finance if that's the case. I get the impression that you can't buy their house and that you have to move.

Could you move to the condo for a while? I think that it's important to deal with these medical bills before you try to buy.

 

[mrsklamc]

Unless you can afford both mortgages for years, I highly suggest selling the condo before you buy a house. I agree with prior posters though- in this market unpaid debt is going to make a mortgage nearly impossible.

 

[OrangeCountyCommuter]

I have just started looking at mortgage options because I may have to move for work. When I bought this place six years ago it was EASY. Heck I put down more then I had too.

Now.... Oh MY! I am going to have to raid some savings because I am not going to pull as much out of this condo as I need to put down. Basically it's really kind of 20% or no go, regardless of credit rating or debt. When you add in a credit rating issue my bet is it's going to be VERY tough.

Good luck!

 

[Hannathy]

I have just started looking at mortgage options because I may have to move for work. When I bought this place six years ago it was EASY. Heck I put down more then I had too.

Now.... Oh MY! I am going to have to raid some savings because I am not going to pull as much out of this condo as I need to put down. Basically it's really kind of 20% or no go, regardless of credit rating or debt. When you add in a credit rating issue my bet is it's going to be VERY tough.

Good luck!

That is the way it used to be and I think if it had stayed that way we would have a lot less foreclosures of people who got in totally over their heads. When I bought my first house you always had to have 20% down.

 

[OrangeCountyCommuter]

That is the way it used to be and I think if it had stayed that way we would have a lot less foreclosures of people who got in totally over their heads. When I bought my first house you always had to have 20% down.

Umpteen years ago... when I bought house number 1, I only had 10%. Of course the house was also dirt cheap. Since then I have always put down 20% from the sale of the prior house (and put any "extra" into an investment) However, this time there won't be that much coming out of the house. While I am NOT upside down... it's worth a lot less then I paid for it! So..... I will have to make up the difference.

I can do it, but I know that for a lot of folks it would be impossible to absorb that "loss" and still get the 20% down. And that means more houses like mine (which woudl be one of the most affordable ways to get into a good school district) are in trouble.

I don't think the "Downpayment" alone was the issue. I think the interest only loans, agressivie ARMs etc where much bigger issues.

 

[Molliday]

You don't have to put 20% down. I'm building, and we're putting 5% down and going conventional. You have to have a 720 FICO score or higher, and no more than a 45% back-end ratio, to qualify for that though.

 

[Molliday]

Umpteen years ago... when I bought house number 1, I only had 10%. Of course the house was also dirt cheap. Since then I have always put down 20% from the sale of the prior house (and put any "extra" into an investment) However, this time there won't be that much coming out of the house. While I am NOT upside down... it's worth a lot less then I paid for it! So..... I will have to make up the difference.

I can do it, but I know that for a lot of folks it would be impossible to absorb that "loss" and still get the 20% down. And that means more houses like mine (which woudl be one of the most affordable ways to get into a good school district) are in trouble.

I don't think the "Downpayment" alone was the issue. I think the interest only loans, agressivie ARMs etc where much bigger issues.

That's us, but I would rather keep money in savings. We're getting out of our current house by the skin of our teeth.

As long as the choice (5% down) is available, I'm taking it. It works the best for us. If I felt comfortable putting 20% down, I'd do it in a heartbeat though. I don't relish the thought of paying PMI, but I have my own plan to scrap it ASAP.

 

[DumboPrincess]

Well, thanks for all the replies and honest answers. Let me see if I can clear some things up:

1)We are paying on my daughters medical bills--it is included in what we pay per month, even though I didn't itemize it here.

2)The late items /collections are 3 years old or older, but still majorly impact our scores.

3)The condo is too small for 4 people, and it is not yet on the market. We are working to have it listed in less than 30 days. When we first started looking we started a savings plan specifically for a down payment. We have $ in there, but not 20%. The savings added to what we will get out of the condo would equal 20%.

4)The neighborhood we live in has gone way downhill in the last 5 years. I would never consider purchasing a house in this neighborhood. The values will only continue to go down, which is another reason for my parents to sell now.

5)We can afford a new mortgage payment on top of the condo payment, and we also have an emergency fund. We have never, ever been late on our mortgage or car payments in the past. I had hoped that would weigh favorably towards a loan.

So thank you for your feedback.

 

[OrangeCountyCommuter]

Well, thanks for all the replies and honest answers. Let me see if I can clear some things up:

1)We are paying on my daughters medical bills--it is included in what we pay per month, even though I didn't itemize it here.

2)The late items /collections are 3 years old or older, but still majorly impact our scores.

3)The condo is too small for 4 people, and it is not yet on the market. We are working to have it listed in less than 30 days. When we first started looking we started a savings plan specifically for a down payment. We have $ in there, but not 20%. The savings added to what we will get out of the condo would equal 20%.

4)The neighborhood we live in has gone way downhill in the last 5 years. I would never consider purchasing a house in this neighborhood. The values will only continue to go down, which is another reason for my parents to sell now.

5)We can afford a new mortgage payment on top of the condo payment, and we also have an emergency fund. We have never, ever been late on our mortgage or car payments in the past. I had hoped that would weigh favorably towards a loan.

So thank you for your feedback.

You seem a little upset by the responses.

Honestly, don't take it personally. Unfortunately what happens is that after the banks SCREWED up they went the exact opposite which may also be a screw up.

I got a car loan about 18 months ago. Bank of America has SO MUCH approval now that they lost the loan. They no longer let the "first level" make the decision and "management" was all out to lunch. In the meantime My bank, USAA, approved it in 2 minutes... So my credit wasn't the issue, my "downpayment" wasn't the issue... running scared was the issue....

You are just caught up in that.... You may have to consider a short and long term solution.. Maybe renting something else for a year or so?

 

[OrangeCountyCommuter]

That's us, but I would rather keep money in savings. We're getting out of our current house by the skin of our teeth.

As long as the choice (5% down) is available, I'm taking it. It works the best for us. If I felt comfortable putting 20% down, I'd do it in a heartbeat though. I don't relish the thought of paying PMI, but I have my own plan to scrap it ASAP.

I haven't even seen that option, but to be honest... I haven't done anything but play with some calcuators in the net and of course they don't really have my info (I would never give those things any "identifiable" info like my SS# etc. ) If I do have to move then I will start the "what ifs" and make some decisions. Luckily housing costs are cheaper where I would be going then where I am!

 

[Glenn]

If you havent gotten a copy of your credit report with a FICO score I would suggest that you do so you know where you stand. Are you set up on a payment plan on the medical bills or just sending in what you want? Some hospitals will report a positive if your on a set plan & keeping to it. Other advise is to save, save, save. You mentioned that your able to spend 2000 for a mortgage on top of the old condo mortgage & have some left for fun. How much are you paying your parents for rent? Anything over what you pay them & that 2000 you mentioned should be going towards savings. Along with a down payment lenders feel more comfortable if you have cash reserves, now days I would suggest at least 6 months of mortgage payments including taxes & insurance. As for your credit, if you pay rent to the folks by check get copies of your canceled checks for a yr or two. It might help showing your paying that on time. From everything youve mentioned so far it sounds like you will have a struggle ahead of you. By any chance are either of you a veteran? If so check out the VA loans. If not talk to a lender that does FHA lending to see what their guidelines are now. Good luck.

 

[Kayka]

OP if the medical debt is the only 'bad' thing in your credit report, and you are paying regularly on it, and you are able to afford the new mortgage on top of the old one (and can prove it on paper) than I think the only thing holding you back is a 20% down payment.