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Advice Charles Please!, VERY LONG POST!

Want a House!

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I must warn you this is a very long post but decided to post it instead of pm you just in case there's someone else out there in the same situation and has the same type of questions.

I've been a member of the board for a few months now and I know you (Charles) are the mortgage expert. Started the credit repair process while I was on maternity leave in April and it is going tremendously well.

We currently own a townhome, the loan is under my husband's name only. We purchased this townhome in August 2002, it is a 30yr loan at 8.5% (very high). We did a no-doc loan back then because my husband is a full-time student working part time and my credit was horrible back then and his was better so I think that is the reason we got such a high interest and we agreed because we were living with my mom at the time and we had just had our second baby and wanted to move to our own little house so needless to say we made some rushed decisions.

While we are very happy with our townhome we now have a 3rd baby, family is growing and kids need a backyard to go out and play, run like crazy, we just need more privacy and will have that with a house rather than living in a townhome complex where the kids just stay indoors the entire day while we are at work.

I ordered the payoff statement from the financial institution and it turns out we are going to have a prepayment penalty because we are supposed to carry the agreement for 3 years. The prepayment penalty right now is $1,933.20.

We also pay monthly association management fees of $328 (very high), so, combining our current mortgage payment of $710 plus association maintenance fee of $328, we are paying 1,038/month for housing. I think with this kind of money and maybe less, or a little bit more we could be in a nice house enjoying our own backyard.

I don’t like the idea of paying a prepayment penalty but at the same time, (here comes my first question) I think that we might be saving money in the long run (no association payment, no more high interest, etc., etc.).

So, that’s basically my first question, do you think we would be saving money in the long run and go ahead and buy a house now and pay the penalty?

Now, I get VERY confused when it comes to agreements so here’s the wording on the borrower’s right to prepay section of the agreement that I do not understand:

“No prepayment penalty will be assessed with any prepayment that is (a) concurrent with a bona fide sale of the Property securing this Note to an unrelated third party and (B) made after the first twelve months of the loan term. The Note Holder may require reasonable documentation at the time identifying the prepayment as being in connection with the sale of the Property. A prepayment penalty will be assessed in connection with a prepayment made during the first twelve months of the Penalty Period, regardless of whether the Property’s has been sold”.

I have no idea what bona fide means, in other words, in basic language can you tell me what that statement means?

So, that is my issue with selling the house and paying the prepayment penalty.

And moving on to the next subject, okay, bottom line is that we want to buy a house, our plan is to use husband’s credit only again, his true myfico scores (pulled today) are:

EXP 669, EQ 640 and TU 663.

He makes $25,000/yr (he is still a full time student so only works 30 hours/wk)

We had late payments on our mortgage last year due to my husband losing his job, we had 30s and 60s but has been clean/on time for the past 8 months. He has been at his current job for 15 months now. Mortgage lates of 2003 are the only lates on his credit, he has been current on his revolving accounts for the last 3 years, and he has no balances on the credit cards. No other debts on his credit, only the mortgage.

He is also eligible for VA.

I am basically the breadwinner of the house, I make $37,700/yr but while my credit is fine now I do have 4 new accounts, since I started repairing my credit and got it all straight I also started rebuilding my credit and therefore got a few new accounts, so I don’t think that is going to fly for a lender, having new credit. We also plan to buy a new vehicle (under my credit only) for which I have been approved as well.

I really need your advice and I need your ideas and need to know what options we have.


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Yes, I am glad that you posted this:

There are 2 different types of prepayment penalty's. They are called Hard and Soft.

Hard it where, no matter what, the penalty is in effect. And it means to the day. Normally 2 years, but depending on the circumstances, 3 years to 5 years.

Soft is where, for the 1st time period, normally 1 year, same deal as the Hard. Nice thing is after that, for the next time period (in your case 2 more years) there is a penalty if you refinance but not if you sell. The reference to a "bona file sale" means that if you get smart and sell the property to your mom, who then rents it back to you, that does not work. It needs to be a completely different person. (Called an arms length transaction).

So the end of this explaination, is that you will not have a penalty if you sell. Happy Day.

Scores look good, there will be a rate issue unless you want to wait until the mortgage lates are over 12 months behind you. With some lenders they count the first of the series of mortgage lates and then only one is considered for 6 months. ie if you are 30 days late for 3 months in a row, it counts as 1 late, so depending on how things happened, might not be as bad as it seems.

The income will be an issue, but again, with the scores, you should be able to get a "stated Wage Earner" loan. There is a rate "hit", but with that income to debt ratio (DTI), it is the only way.

I want to put in a word of caution on stated income loans. They are really for this type situation and where the borrower is self employed. This situation because in real life, we have the income from both people to work with, but have documentation on only one income. (So I will work with 62K for stated income) The other situation is where the borrower owns or runs a business, in that case the income that tax is paid on is much lower that actual income.

Mortgage lates & collections will kill the chance for VA.

I appreciate the comment on your buying a new car in your name only. Once the process starts, loan officers panic if someone wants to do anything like that. No purchases, no drastic job changes, etc. In this case we are not using your credit so won't matter.

Must be a lot of fun at your home on Saturday mornings when everyone is home. Kids and family is where it is at in my book. Ours are grown up basically, so sort of quiet here. good luck and let us know if we can be of any other assisstance.


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Those are WONDERFUL news Charles!!!!, I am sooooo glad I asked about the prepayment penalty.

Thanks a lot!,

Do you think he can get 100% financing?

Do you think the interest would be worse than what we have now (8.5%)?

This labor day weekend we are going to finish a few things around the house, take pictures and start posting the townhome and hopefully sell it soon.

I really appreciate your advice and I look forward to doing business with you soon, after reading all the positive comments about you and how you have helped so many on this board I am confident that you will walk us through this process and help us get the best deal.

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