Starting from square 1

**jIM_Ohio** · 07-30-2008, 09:45 AM

30k income- is that per year, per month, or sitting in the bank right now?

Goal 1- spend less than you earn. Set 10% of your monthly income aside. Retirement account or other account. Then use the other 90% to meet the bills and spend as needed.

Over time, try to increase the 10% to 20 or 30%.

**skydivingchic** · 07-30-2008, 11:12 AM

I think we need a little more information to give decent advice.

$30,000 - is that a one time lump sum thing or is this your income? Do you have any debt beside the mortgage? What are you monthly expenses compared to your monthly income?

If the $30,000 is a one time lump sum, I would recommend using it to set up an emergency fund in a high yield online savings account. General recommendation is for 3-6 months expenses, exactly how much will depend on your situation (i.e. number of people dependant on your income, stability of your job, etc).

If you have credit card debt, I would consider paying it off with the money. However, if there is credit card debt, you need to first address the spending issues that lead to the debt or you will just be back in the same situation later on.

If the $30,000 is income, I agree with Jim. Set at least 10% aside. An easy way to do that is take advantage of a 401(k) if your employer offers one.

For more tailored advice, we need more detailed info on the situation.

**DebbieL** · 07-30-2008, 01:25 PM

Please tell me the $30K isn't from one of those cash back mortgages? I hope you haven't mortgaged more than 100% of the purchase price of your home.

**gotcats** · 07-30-2008, 06:14 PM

The 30,000 is from an inheritance. I have no c.c. debt. My car is paid for. Below is the specifics of the house we signed papers on in May. We could not get financing on our own due to lack of credit history.

Purchase Price - $90,500 in owner carried financing, plus $5000.00 cash

Original date of first loan � May 28, 2008

Wraparound Note to be executed by the Buyers - $90,500.00

Interest rate � 9.90 percent

Term - Thirty year amortization with four year balloon payment
Principal Amount: NINETY THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($90,500.00)

Annual Interest
Rate on Unpaid
Principal from
Date of Funding: Nine and nine tenths per cent (9.9%)

Maturity Date: June 1, 2012
Terms of Payment
(principal and
interest): Commencing on July 1, 2008, and on the same day of each succeeding month thereafter until the entire remaining principal balance hereof and earned interest is paid in full, the principal balance of this note, plus accrued interest thereon, shall be due and payable in consecutive and equal monthly installments in the amount of Seven Hundred Eighty Seven Dollars and Fifty two Cents ($787.52) each, provided that a balloon payment in the amount of the entire remaining principal balance hereof and earned interest shall be due and payable on June 1, 2012. Payments will be applied first to accrued interest and the remainder to reduction of the Principal Amount.

Borrower hereof shall have the privilege of paying all or any part of this Wraparound Promissory Note prior to maturity without penalty.

Our annual income is approx 36,000 and monthly bills are usually about 1900.00 including house payment.

**skydivingchic** · 07-30-2008, 06:52 PM

Since this is a one time lump sum, I would recommend using it to establish an emergency fund. If you go with 6 months worth of expenses, set aside $12,000 in either a high yield online savings account (one forum member maintains a list in this section of the forum of current interest rates) or laddered CDs.

You don't say anything about retirement accounts. I would recommend looking into an IRA. The limit this year is $5,000. You say "we", so I'm assuming a spouse. That means opening 2 IRA accounts with another $10,000.

That leaves you with $8,000. You mentioned needing dental work, so that is one possibility.

Going forward, you need to be thinking about retirement savings. Does your and/or your spouse's employer offer a 401(k)? If so, you should look into contributing to that. If not, you can continue putting money into the IRAs mentioned previously. The general recommendation is to save 10% to 15% of your income for retirement. However, you said you are 48 and said nothing about any retirement savings. If that is the case, you need to start socking away as much money as possible, as you have some catching up to do.

Finally, you also mentioned frequent overdrafts. That tells me that you are likely living beyond your means. Spend a month or two writing down every single purchase you make so that you can get a handle on expenses. Once you have a handle on your spending, sit down and compare income and outflow. Also don't forget to think about expenses that only come periodically like insurance, vehicle maintenance, or auto registrations. If you are having problems with a budget, there are lots of people here who are really good at finding areas to save.

Good luck.

**maat55** · 07-30-2008, 06:53 PM

I would set aside 5000 for an EF. If your credit is ok, I would attempt to refinance, using 18,000 down. Whatever is left, I would fund a roth IRA.

**gotcats** · 07-30-2008, 07:54 PM

Thanks, I did see that list earlier. Our employers do not offer 401k or any type of health/dental ins. I am taking this advice to heart and start my search for a Roth IRA.First step is to find out what that is.
We don't have bad credit, we just don't have any credit. We're hoping that that will change after 1 or 2 years of paying this mortgage.
Thanks again, I appreciate everyone's input.

**noppenbd** · 07-31-2008, 03:58 AM

I would suggest $5000-7000 emergency fund in a plain old savings account.
$5000 in a Roth IRA for 2008.
Unless you can refinance immediately, the rest should probably go towards paying down your mortgage. At 9.9% interest rate you will not be able to beat the guaranteed return of paying off that debt. I would also suggest opening a credit card or two to establish revolving credit history. Paying down a mortgage will help but the more diverse your credit history the better. Just use the credit cards once or twice a year to show that you can use them responsibly. Other than that they can sit in the junk drawer. Then in 2-3 years you can try to refinance this ugly mortgage, before the balloon payment is due.

A Roth IRA is a special kind of account that gives you favorable tax treatment for saving for retirement. Within the Roth you can buy mutual funds, stocks, bonds, etc. The advantage of putting money in a Roth over a plain old savings account is that when you take the money out there are no taxes paid on it, even if the amount has doubled since you put it in. Compare that to a plain old savings account where you have to pay taxes on the interest every year.

Opening a Roth IRA is very simple. You should choose one of the low cost providers like Vanguard, Fidelity, or T Rowe Price. If you call them they can guide you through the process of opening the account, and even suggest mutual funds to purchase within the Roth.

**simpletron** · 07-31-2008, 06:00 AM

since your mortgage is owner financed, you should keep extra careful records of payments and any other exchanges of information. get a reciept or copy of cancelled checks for every payment. try to have everything written down and signed. just be on your toes because I have heard plenty of sad stories of owner do something wrong and the borrower having no recourse because they didn't have a paper trail.

also you need to make sure that the owner reports the payments to the three credit bureaus(experian, transunion, equifax), so that it can affect your credit. you can get free copies of your credit report here:

Annual Credit Report.com - Home Page

https://www.annualcreditreport.com

ACR Home Page

also I would look into a FHA refinance because they are pretty lax about credit history if you can prove that you have a good payment history like paying your rent and utilities on time for the past 1 or 2 years.

**jIM_Ohio** · 07-31-2008, 09:36 AM

I saw a 4 year balloon on the mortgage note- do you understand what this means? You will need to pay the full 90k within 4 years. That means you need to come up with 23k per year to send to mortgage, or you will default on the current loan.

Here is what I would do:

1) apply 25k to the mortgage now and keep 5k set aside as cash for emergencies.

Mortgage balance is down to 66k.

2) Each month, try to send another $400 to the mortgage. This will reduce amount owed on balloon to about 46k.

3) In that same timeframe, you should look to refinance the loan to better terms. If you do not pay attention to the details and deal with this soon, you will risk losing your house.

**anonymous_saver** · 07-31-2008, 11:54 AM

Okay maybe I'm missing something, but why is your interest rate so high??? 9.9% interest on a mortgage scares me!

**jIM_Ohio** · 07-31-2008, 01:04 PM

Okay maybe I'm missing something, but why is your interest rate so high??? 9.9% interest on a mortgage scares me!

no credit history for one

**Seeker** · 08-09-2008, 10:47 AM

...and the second reason is that they obtained a loan from the owner. The owner "owns" that property (retains title) until the loan is fully paid. At the end of four years, this property will probably default back to the owner.

Because they did not go through a bank or lending agency, the owner can and did arrange his terms of sale.

gotcats: You & your SO probably need to take on a second part-time jobs. With your yearly income of $36k, I cannot see you meeting the terms of this balloon loan in 4 years; nor can I see anyone else loaning you this money at a lower rate without a credit history.

Sorry, find more income! Apply all extra income monthly toward principal. Budget!

**MiikeB** · 08-09-2008, 03:45 PM

I think a 4 year balloon payment is a bit risky but should be fine.

I think you need to make sure you spend the next 4 years establishing credit so you can take out your own mortgage in 4 years to meet the balloon payment.

I think you should set aside 20k and set it aside. Then go looking for a bank to give you a mortgage on your house with a 20k downpayment. Even with no credit history I think you shouldn't have too much trouble finding a bank willing to lend you the money with over a 20% downpayment at a much better interest rate.

I think you should take 5k of the remaining 10k and set it aside as an emergency fund in a bank like INGDIRECT or another high yield savings account.

Use the remaining 5k to start a ROTH IRA and work on maxing it out every year.

Also, if you manage to get the mortgage after putting 20k down on it I think you should take the money you are saving since your payment will go down and buy yourself some health insurance. Even if you get a high deductable insurance you need it in case an emergency happens. One trip to the emergency room could complete wipe out the 30k you fell in to.

Starting from square 1