Re-establishing Credit

[KrustyKrabs]

This is a pretty sensitive issue, but I am hoping with all of the professional and experienced investors that are here, I may get some un-biased opinions.

Recently I separated from my wife, and then shortly after found myself in financial difficulty.
I am 37, have an excellent paying job ($90,000 + gross per year), 2 young children, but absolutely nothing saved and many wasted years of not setting goals for my future. I walked away from the matrimonial home (which had no equity), and absorbed a lot of the debt....nice guy huh? lol!

As a result, I took some biased advice from a trustee in bankruptcy that I should make an assignment. I did that and now I just found out from a financial advisor that it`s possible that I cannot expect to obtain a mortgage for years!!!!!

(Why didn`t this trustee tell me this, and that there were other options?)

Aside from that, previous to the assignment my credit was impeccable, but as you can figure out, my TDS ratio was through the roof.

In 6 months I will be automatically discharged, but my credit will be ruined.

What I am asking......does anyone have any experience with anyone in this situation? If so what are my options in 6 months....or longer?

I don`t need any sugar coating, just some real advice so I can plan my Personal Belize!

Thank you in advance for your response!

 

[RedlineBrett]

QUOTE (KrustyKrabs @ Nov 17 2007, 09:00 AM) This is a pretty sensitive issue, but I am hoping with all of the professional and experienced investors that are here, I may get some un-biased opinions.

Recently I separated from my wife, and then shortly after found myself in financial difficulty.
I am 37, have an excellent paying job ($90,000 + gross per year), 2 young children, but absolutely nothing saved and many wasted years of not setting goals for my future. I walked away from the matrimonial home (which had no equity), and absorbed a lot of the debt....nice guy huh? lol!

As a result, I took some biased advice from a trustee in bankruptcy that I should make an assignment. I did that and now I just found out from a financial advisor that it`s possible that I cannot expect to obtain a mortgage for years!!!!!

(Why didn`t this trustee tell me this, and that there were other options?)

Aside from that, previous to the assignment my credit was impeccable, but as you can figure out, my TDS ratio was through the roof.

In 6 months I will be automatically discharged, but my credit will be ruined.

What I am asking......does anyone have any experience with anyone in this situation? If so what are my options in 6 months....or longer?

I don`t need any sugar coating, just some real advice so I can plan my Personal Belize!

Thank you in advance for your response!

I`m not experienced with bankruptcy or it`s effects - but I do know a couple tricks to build your credit rating - some of the mortgage guys on this forum might be able to chime in with some more detailed advice but basically if you want to rebuild your credit you need to borrow or buy products & services from vendors or suppliers that extend to you payment terms and also report your payment history to the credit bureaus - Equifax, experian, dun & bradstreet etc.

My advice would be the following:

1. Contact a professional credit counsellor and tell them you want to rebuild your credit and get their advice.

http://www.creditcounsellingcanada.ca/about_us.html

is a non-profit counselling service that could direct you a bit better than I could.

2. If you want to own a home, look for a long term rent-to-own deal from an investor. There are LOTS of people offering these types of deals today and if you can prove to them you make 90k/yr and get paid consistently you will have no trouble findind a decent deal. Alternatively, you could get an agent and ask them to set you up on a recurring search for non-qualification assumable mortgages. RBC does these as well as some B lenders but they tend to have higher rates. You will need some cash to close on this kind of deal though - when you may not on a rent-to-own or at least not the same amount.

3. Make a game of saving and budgeting and re-aligning yourself towards your personal belize. Some people like to do this with a friend (like weight loss or exercise regimens) where they report to each other how much they`ve cut their spending or how much they have put in their `down payment fund` or the like to get back on track. Get the monsters out of the closet and on paper and set goals and work towards them.

Rebuilding credit & starting over takes a lot of work - the good news is that if you discipline yourself and set goals you will get really sharp and motivated as you reach them! The self-discipline you forge at this stage will bring you great success in your investing career.

Good luck!

 

[RobMacdonald]

Alot will depend on exactly what your trustee ended up doing. Did you actually declare bankruptcy? Or did the trustee arrange for credit protection? This would be the difference between R8 or R9`s on your credit bureau.

In most cases, it is possible to find financing for people who are discharged from bankruptcy, and sometimes before discharge, but the cost of the financing can be prohibitive. CMHC and Genworth require 2 years from discharge, plus re-established credit. Sub prime or alternative lenders may approve a mortgage shortly after discharge, but the interest rate and fees may be prohibitive.

It would be best to consult a mortgage broker, that can assess where you are today, and make a plan for you to repair your credit history. Many times this can be accomplished in 12 months. It may be expensive at first, but if you follow the right steps, and stick the the counselling advice, a broker will be able to move you from a sub prime lender, to an A- lender, and eventually to a standard mortgage product. If you`ve got a good, long term stable income, that will be a big plus in the whole scenario.

Rob Macdonald
General Manager

 

[KrustyKrabs]

Thanks for your comments RedlineBrett. I feel that renting to own is really the antithesis of what I plan to accomplish in the long-term. My biggest concern is to repair my credit, and get started on the road to becoming a sophisticated real estate investor, in order to achieve my financial freedom and get out of the "rat race".

I will do my best to save money in the mean time, as I have heard that sometimes you can get a pre-paid credit card to begin with, and then slowly, after proving that I am no longer a risk, graduate to a real credit card. All the while, not missing one single payment and not carrying a balance.


QUOTE (RobMacdonaldCMT @ Nov 17 2007, 04:36 PM) Alot will depend on exactly what your trustee ended up doing. Did you actually declare bankruptcy? Or did the trustee arrange for credit protection? This would be the difference between R8 or R9`s on your credit bureau.

In most cases, it is possible to find financing for people who are discharged from bankruptcy, and sometimes before discharge, but the cost of the financing can be prohibitive. CMHC and Genworth require 2 years from discharge, plus re-established credit. Sub prime or alternative lenders may approve a mortgage shortly after discharge, but the interest rate and fees may be prohibitive.

It would be best to consult a mortgage broker, that can assess where you are today, and make a plan for you to repair your credit history. Many times this can be accomplished in 12 months. It may be expensive at first, but if you follow the right steps, and stick the the counselling advice, a broker will be able to move you from a sub prime lender, to an A- lender, and eventually to a standard mortgage product. If you`ve got a good, long term stable income, that will be a big plus in the whole scenario.

Rob Macdonald
General Manager

Thanks Rob, very informative and to the point. If what I am understanding that there is a possibility that within a couple of years, I may be able to own my own home....which would probably be the best starting point in my future real estate investment business, then that is some good news to me.

As far as the bankruptcy goes, all I am aware of is that I made an assigment in Bankruptcy, and that I will be discharged in 6 more months...God willing. As you can see, I failed to educate myself of my options prior to claiming bankruptcy, which now proved foolish. But, I have learned a valuable lesson in all of this, and from my readings of Don Campbell`s books, which is to "look behind the curtain", and to learn ALL of the facts in all of the decisions that I have to make in my life.

When you mentioned that it would be "expensive" to repair my credit history, what did you mean by that? Also, B-lenders, A-lenders? I will have to do some Googling about what those are, so I can properly protect my own interests when the time does come.

Again, I appreciate all of the help.

 

[RobMacdonald]

Generally B lenders will charging higher interest rate, 8 to 12%, and probably an lender fee as well. It would be good idea to inquire through a broker to determine a course of action, and get a quote as to what could be done today.

Rob

 

[KrustyKrabs]

QUOTE (RobMacdonaldCMT @ Nov 17 2007, 06:13 PM) Generally B lenders will charging higher interest rate, 8 to 12%, and probably an lender fee as well. It would be good idea to inquire through a broker to determine a course of action, and get a quote as to what could be done today.

Rob


So, from what I understand the "unwritten" rule is, the higher the credit risk, the higher the interest rate, hence, the higher the payments. I am hoping that when the time comes, my proof of solid employment record will help me to overcome these higher rates.

Even still, perhaps if I can manage to find a suited investment property that I can occupy part of, that may also be a good start in my real estate investment future. The only drawback that I do have is the market that I live in...Windsor Ontario. I have not yet done a property goldmine scorecard here, but my gut feeling is that the entire area would fail as an investment city.

We have the following well known Mortgage Brokers in this city: Mortgage Alliance, Mortgage Intelligence, Unimor, and Invis. Those are just the popular ones. With so many branches and brokers, how can one quickly find out who is a specialist in investment real estate? Almost all of them only advertise their merits as personal finance brokers.

Thanks, again Rob.

 

[Kimberly]

Given today`s computer technology and phone communications, you don`t have to use the companies in your city. Many REIN members use the services of the Peter Kinch Mortgage team from either their Toronto or BC offices. At one of the REIN meetings, the Kinch team suggested to use any great local bank/mortgage company that you might already have a great realationship with, then after you exhaust what monies they can give you, then look to the Kinch organization to set up more advance financing opportunities. Either way, it`s about getting a strong team together - lawyer, mortgage brokers, real estate agent, property manager, building inspector. Ask others who they use, make an appointment and talk to them, explain your plan, your circumstances, and things will start to fall in place. There is no quick fix but work your plan. I went thru a divorce 4 years ago - not with the same finacial circumstances as you - but the years will go by very quickly so get the component of your plan together and work work work it.

As for Windsor as a place to invest, we were presented information at one of our REIN meetings that it was the one city in Canada where housing went down in value by 1.2%. Some folks might see that as an opportunity, others don`t. If you can go to previous REIN meetings and behind the curtain, you will see a few articles on Windsor. As a member you could also contact the expert team at the REIN office.

Kimberly

 

[KrustyKrabs]

Thanks Kimberly.

It`s very re-assuring that I can still move forward with my plans...even if it is at a slower rate than I wished.

On the positive side, I can make use of this transition from slave to investor by researching, reading, and learning all that I can.

As far as Windsor goes, from what I have witnessed while working in the skilled trades here, there have been a lot of shop and plant closures. Thousands have lost their jobs abruptly over the last 2-3 years and are now feeling the crunch. As a result, this has literally flooded the housing market with homes for sale, and people are NOT getting what they want for their houses.

At the same time, the mayor et al, appear to be vocal in bringing in new employers in an attempt to diversify our local economy.

There are also a lot of skilled labour leaving for Alberta as a result, so it`s imperative that the local government be really careful on the type of employers they wish to attract.

Perhaps, with the market flooded with under-priced homes, and a possible increase in the number of renters due to bankruptcies/foreclosures, they may exist some possibilities in certain communities. All in all, it will certainly depend on the local government attracting the right long-term employers.

Of course, we cannot ignore the plans for another international crossing that is to be built in the next 10 years. This could quite possibly increase the property value of the south/central and south/west areas of the city......but I predict......as usually happens....taxes will be raised steadily for all to accomodate this massive infrastructure improvement. If that happens, it will make it even more difficult for people to own their own homes, and could be a deterrent for new businesses.

Well, that`s just my un-educated opinion, but I am starting to open my eyes to different things!

By the way......thanks for the motivational words Kimberly, it really does mean a lot to me!

Glen

 

[neill]

A couple of quick notes as well:

1) If after discharge you can save yourself a chunk of money, you might be able to come up with an RRSP loan for the balance, and/or put a sizeable chunk down on a vehicle purchase or lease (sometimes you can even offer up a large security deposit - which comes back to you) to help get trade lines re-established on your bureau.

2) If you have a family member or friend that has strong credit and is willing to co-sign, again you can help re-establish.

3) Avoid if possible any institution that does NOT report the bureau (some smaller auto lease companies, especially dealer "in-house" and some of the credit unions) as they do not help as strongly to build your credit - the reference letters help, but are not as strong as showing the I1 or R1 on the bureau....

Good luck - anything is possible!!!

 

[KrustyKrabs]

QUOTE (neill @ Nov 20 2007, 02:31 AM) A couple of quick notes as well:

1) If after discharge you can save yourself a chunk of money, you might be able to come up with an RRSP loan for the balance, and/or put a sizeable chunk down on a vehicle purchase or lease (sometimes you can even offer up a large security deposit - which comes back to you) to help get trade lines re-established on your bureau.

2) If you have a family member or friend that has strong credit and is willing to co-sign, again you can help re-establish.

3) Avoid if possible any institution that does NOT report the bureau (some smaller auto lease companies, especially dealer "in-house" and some of the credit unions) as they do not help as strongly to build your credit - the reference letters help, but are not as strong as showing the I1 or R1 on the bureau....

Good luck - anything is possible!!!

Thanks for the info Neill,

I was just wondering about the rrsp loan however. Isn`t that only for first time home buyers or those who haven`t owned in the last 5 years? Since I was technically a home owner this past August, and may very well still have my name on the deed, this may not apply to me. Also, what criteria is considered when you wish to use the rrsp`s to buy a house? For instance, is it the last time your name was on a mortgage or a deed?

As far as a lease on a car goes, I have made up my mind that my current car lease is not an asset, it is a liability and plan on getting someone to take over the lease. I don`t mind busing it and taking a cab once in a while if I can create extra personal cash flow of $500 per month for the next 2 years which it might take before I can purchase my first property. Perhaps, if I can manage to do it, my first property will pay for a vehicle, allowing me to get around quicker to search the markets. Just a thought.

Glen

 

[markl]

Glen,

We help people repair credit to purchase lease to own properties. We generally look at 2 years after discharge to get an insurable mortgage. This may be a way to get into a personal residence.

For RE investing why does bad credit hold you back? I for one have not gone on title for the last 6 properties I have bought. Because I am self employed and declare very little income and most of my partners have good jobs and good credit. With JV`s everything is negotiable. Just some food for thought.

On the personal residence note as I stated we help people like you get into the homes they want to be in. check out our website it may be for you www.homeownersoon.com at least it is an alternative to renting.

Regards,

Mark Loeffler

 

[KrustyKrabs]

QUOTE (markl @ Nov 20 2007, 09:01 AM) Glen,

We help people repair credit to purchase lease to own properties. We generally look at 2 years after discharge to get an insurable mortgage. This may be a way to get into a personal residence.

For RE investing why does bad credit hold you back? I for one have not gone on title for the last 6 properties I have bought. Because I am self employed and declare very little income and most of my partners have good jobs and good credit. With JV`s everything is negotiable. Just some food for thought.

On the personal residence note as I stated we help people like you get into the homes they want to be in. check out our website it may be for you www.homeownersoon.com at least it is an alternative to renting.

Regards,

Mark Loeffler

Thanks for your remarks Mark, I really do appreciate all of the advice I am getting......a very good sign that REIN is going to be here for me.

I am not experienced at all in this yet, so I just draw a blank when it comes to considering investing in real estate/getting mortgage approvals......I just assumed that since I really screwed up my credit (and learned from it) that I wouldn`t be given the time of day even if I did all of my due diligence right down to the penny.

When you say that you are self employed, I am assuming that you are referring to your every day job. When you make the RE transactions, is that thru your corporation? I have only limited knowledge of JV`s form reading Don Campbell`s books, do you have any suggestions where I could learn a lot more in depth?

Again, thanks for your time and advice.

 

[AChrunik]

One of the best ways to start the process of re-establishing your credit is to go and apply for a "secured" visa. This will be one of the 1st steps to improving your credit.

 

[Ryan]

Hi Krusty,

If you have any access to funds you may want to consider doing a Joint Venture with someone - you can still begin investing in this way and take advantage of key markets. The JV Partner can do the mortgage alone and then list you as a second mortgage on the property thus you don`t have to qualify at all (I could stand to be corrected on that but this is my understanding).

All things considered though - keep your chin up .. It`s perspective... You`re ONLY 37 - by the time your 45 your record will be clean for the most part and if it`s within your means now to invest as a JV Partner then you`ll be building a nice nest egg to begin solo investing at that time.

Still - when applying for a mortgage at 45, 46 I`d still be very upfront with your broker about your credit past. In your sophisitcated investors binder you list the credit history and explain it. Your broker will likely appreciate your being up front about it and this will go a long way to establish your credibility.

Kind regards,

 

[MikeMcCrae]

Your situation Glen makes you a target for unscrupulous lenders. Be careful you don`t get taken advantage of. There are mortgage products for most situations but not all are good for moving forward for investors. When shopping for a mortgage broker find one that understands your future plan. Most brokers could get you into a property but what about the next one? There are many mortgage brokers and agents that have many properties of their own and have learned many lessons along the way. Talk to several brokers. You are hiring a long term advisor pick one you like and trust. Their are many REIN members that are buyers as well as brokers they all likely have a pretty good understanding of your situation and would be pleased to help. Talk to a few of them.

 

[Shaune]

Any good mortgage broker will help you through your situation. You do not have to wait years to get approved for a mortgage. Certainly the option of a JV arrangement with an investor is viable. I have done deals with folks in a similar situation to yours. You would become the "perfect tenant" and pay all the costs to own and operate the property while you live there. The JV partner would receive 50% of the profit when the home is sold to either you or someone else. If sold to you then you would need to be able to come up with 50% of the equity appreciation.

Shaune Impey
Gradan Properties Ltd
780-932-8313

 

[KrustyKrabs]

I think that my number one choice of action is going to be to find a mortgage broker familiar with both my situation and that of real estate investing.

I am not really interested in JV`s or Rent To Own. I have much to learn before I can even consider the JV, since I still have no clue as to how they are setup/arranged/negotiated. As for the latter, just a quick glance at the numbers makes me sick to my stomach.......I am not in that much of a hurry to "own" my own home to the point that I`d be willing to fork over an extra 25% of what the house is really worth to a private "rent to own" lender.

If anybody is familiar with a mortgage broker experienced in investment real estate, in the Windsor Ontario area, please let me know.

Thanks for everyone`s advice in this matter!

 

[neill]

QUOTE (KrustyKrabs @ Nov 20 2007, 04:09 AM) Thanks for the info Neill,

I was just wondering about the rrsp loan however. Isn`t that only for first time home buyers or those who haven`t owned in the last 5 years? Since I was technically a home owner this past August, and may very well still have my name on the deed, this may not apply to me. Also, what criteria is considered when you wish to use the rrsp`s to buy a house? For instance, is it the last time your name was on a mortgage or a deed?
Hi Glen - I was referring more to the re-establish side of things - ie. setting up an RRSP loan, which would create a positive trade line on your bureau. I am not sure how the borrow from your RRSP part works for down-payment....

QUOTE As far as a lease on a car goes, I have made up my mind that my current car lease is not an asset, it is a liability and plan on getting someone to take over the lease. I don`t mind busing it and taking a cab once in a while if I can create extra personal cash flow of $500 per month for the next 2 years which it might take before I can purchase my first property. Perhaps, if I can manage to do it, my first property will pay for a vehicle, allowing me to get around quicker to search the markets. Just a thought.

Glen

With regards to your lease, if it is currently reporting the bureau and is paid in a timely manner, it might be again a positive line on your bureau that you can carry forward. I would recommend discussing the +/- with your mortgage broker before making a final decision on the lease....

As far as a recommendation for a mortgage brokers, Don Campbell gives out a pretty sage piece of advice - the geographic location of your team is not as important for certain members, such as lawyers, acct, mortgage brokers - their skills and abilities are

We are a case in point - we had a great banker in Sask for all of our RE investments. When she took early retirement this year, we transferred to a local institution after some research. When the local bank said that they could not help us on our latest property, we immediately contacted Rob MacDonald (do a member search here and you will find him as he is pretty active) at Peter Kinch`s office in BC, and their service has been outstanding - and our approval was smooth and very efficiently handled.... the credentials they carried by being associated with REIN made our decision to go with them a no-brainer.

Neill

 

[Dan_Eisenhauer]

Hi Krusty;I have been exactly where you are... and probably in a much deeper hole. All of the comments made above will act as a guide for you to get re-established.

I started with a secured credit card at a "new" bank. I made sure I used that and repaid it on a monthly basis. I found a car dealer who would sell me a car over time, even though I was not fully discharged. Doing so with a "company" allowed that company to report my credit history. (You may be able to find such a dealer in the yellow pages , online, or even in the auto section of the local paper.) Since then, all my cars have been used. My next vehicle purchase will be a NEW car. YAHOO!!!

Gradually I rebuilt my credit. It takes time. I now have four credit cards that I use as much as I can, but pay off monthly. I rejoice every time I am offered a credit increase on those cards. (One came this week.) I celebrated when one of those cards turned into a platinum card. Every time I use it, that platinum card reminds me of how far I have come, and I have a mini-celebration.

Today I am doing all of my real estate purchases through joint ventures. Someone recommended that to you above. I can only say that it works.

 

[KrustyKrabs]

QUOTE (Dan_Eisenhauer @ Nov 25 2007, 11:27 AM) Hi Krusty;I have been exactly where you are... and probably in a much deeper hole. All of the comments made above will act as a guide for you to get re-established.

I started with a secured credit card at a "new" bank. I made sure I used that and repaid it on a monthly basis. I found a car dealer who would sell me a car over time, even though I was not fully discharged. Doing so with a "company" allowed that company to report my credit history. (You may be able to find such a dealer in the yellow pages , online, or even in the auto section of the local paper.) Since then, all my cars have been used. My next vehicle purchase will be a NEW car. YAHOO!!!

Gradually I rebuilt my credit. It takes time. I now have four credit cards that I use as much as I can, but pay off monthly. I rejoice every time I am offered a credit increase on those cards. (One came this week.) I celebrated when one of those cards turned into a platinum card. Every time I use it, that platinum card reminds me of how far I have come, and I have a mini-celebration.

Today I am doing all of my real estate purchases through joint ventures. Someone recommended that to you above. I can only say that it works.

Dan, thanks for your comments. It`s encouraging to know that I still have a future, in spite of my "big mistake in life". Are you able to describe what`s involved in JV`s? (either here or pm me)

As soon as I am able to, I would like to get started on my future real estate investing career by getting out of this apartment and getting into a home where I can build equity.

Does it make sense to perhaps first buy a Duplex, live in one suite, while renting out the other suite?

I figured that this would further reduce my cost of living making it possible to increase the payments on that mortgage to build as much equity as quickly as possible until I can purchase my next property.

Thanks again for everyone`s encouraging words and advice.

Glen