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Buying First Home... Interesting Situation

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  • Oct 2nd, 2020 1:07 pm
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Sep 25th, 2020 8:42 pm
DudeManBro [OP]
Newbie
Sep 24, 2020
3 posts

Sep 25th, 2020 8:42 pm

Buying First Home... Interesting Situation

Hey everyone, long time lurker here but this is my first post. I will leave out all the unnecessary details. Here's the situation:
$35,000 in debt split between CC and LoC at RBC.
House is for sale, I want to buy it, it is $40,000.
Self employed small business owner, avg monthly income for past 2 years about $1500.

I have been paying around $400/month in interest on my debt + the $300 for minimum CC payment for the past few years, so $700/mo., while not making any headway on my debt, also while living with family. Never missed any payments though, I always find a way to make things work, but these interest payments have been decreasing my quality of life.

I want to consolidate my debts and get a mortgage, after which I should be paying LESS than I am now for my current debts, make progress on the total because the interest is much lower, AND also have my own home.

Mortgage broker told me I have no chance of getting a mortgage or loan because of my debt to income ratio, and that RBC probably wouldnt increase my limit. Suggested that I try to go to another bank, or multiple banks, to get a line(s) of credit worth $40,000. Buy the house. Return to him to get mortgage, and use that mortgage to pay off lines of credit for home, and all remaining CC/LoC debt at RBC.

My questions are:

Is this the best way to go about it, and/or is there any other way to do this?

Assuming I get the Lines of Credit to buy the house, is it possible to purchase the house, go back to the mortgage broker, get the mortgage and pay off the Lines of Credit withing a short period of time to avoid paying the interest on the lines of credit (which would be 6x higher than the mortgage interest)?

If any more details are necessary just let me know.
Thank you all for taking the time to read, I look forward to seeing what you guys think.

Edit: Forgot to mention, I also own a 40-acre piece of farmland. Is it possible to use this as collateral in any way?
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23 replies
Sep 26th, 2020 2:07 am
BillyBill
Sr. Member
May 13, 2015
873 posts
1199 upvotes
Dartmouth, NS

Sep 26th, 2020 2:07 am

Makes me cringe thinking how much interest you've been paying. I'm scared to even ask what the interest rate is on your CC and LoC.

Have you ever done credit card balance transfers? You should be able to switch between promotions every 6 months and effectively pay around 2% interest on your current debt.

If you get a $40,000 line of credit to buy a $40,000 house... and you have $35,000 of other debt... why would you all of a sudden be able to get a mortgage for $75,000? Normally when you buy a house, you can't get a mortgage for almost double what the house is worth. So I would be quite skeptical about a mortgage broker claiming he could get you a $75,000 mortgage on a $40,000 house so that you could pay off your lines of credit and CC debt.

But if you can't get a mortgage in your current situation... I don't see how buying the house using a line of credit changes the situation at all. If anything, it makes your financial situation even worse, which would make the bank even more unwilling to make that loan.

My advice is to see if you're able to balance transfer to another credit card to get a super cheap rate for a while. Then sell your 40-acre piece of farmland. It doesn't make sense to own this asset when you have so much high interest debt. Even if you think your farmland will go up in value... it's not going to appreciate anywhere near the rate of interest you're paying. So sell off your assets to pay down your debt. When your debt is lower, a bank will be more willing to lend you money to buy a house.
+1
Sep 26th, 2020 8:54 am
NeilJoseph
Sr. Member
User avatar
Aug 20, 2020
521 posts
88 upvotes
Scarborough

Sep 26th, 2020 8:54 am

DudeManBro wrote: ↑ Hey everyone, long time lurker here but this is my first post. I will leave out all the unnecessary details. Here's the situation:
$35,000 in debt split between CC and LoC at RBC.
House is for sale, I want to buy it, it is $40,000.
Self employed small business owner, avg monthly income for past 2 years about $1500.

I have been paying around $400/month in interest on my debt + the $300 for minimum CC payment for the past few years, so $700/mo., while not making any headway on my debt, also while living with family. Never missed any payments though, I always find a way to make things work, but these interest payments have been decreasing my quality of life.

I want to consolidate my debts and get a mortgage, after which I should be paying LESS than I am now for my current debts, make progress on the total because the interest is much lower, AND also have my own home.

Mortgage broker told me I have no chance of getting a mortgage or loan because of my debt to income ratio, and that RBC probably wouldnt increase my limit. Suggested that I try to go to another bank, or multiple banks, to get a line(s) of credit worth $40,000. Buy the house. Return to him to get mortgage, and use that mortgage to pay off lines of credit for home, and all remaining CC/LoC debt at RBC.

My questions are:

Is this the best way to go about it, and/or is there any other way to do this?

Assuming I get the Lines of Credit to buy the house, is it possible to purchase the house, go back to the mortgage broker, get the mortgage and pay off the Lines of Credit withing a short period of time to avoid paying the interest on the lines of credit (which would be 6x higher than the mortgage interest)?

If any more details are necessary just let me know.
Thank you all for taking the time to read, I look forward to seeing what you guys think.

Edit: Forgot to mention, I also own a 40-acre piece of farmland. Is it possible to use this as collateral in any way?
Reach out to a credit counsellor and check if they can help negotiate the debt with your lenders. A consumer proposal might prevent you from getting a mortgage but at least you would be able to get over the debt you currently have. Debt consolidation can work only if one is home "rich" but cash poor.
Neil Joseph
Mortgage Agent, Broker Lic #10530
Sep 26th, 2020 9:31 am
teoconca
Deal Fanatic
User avatar
Oct 16, 2008
7922 posts
2640 upvotes
Maple

Sep 26th, 2020 9:31 am

Be realistic to yourself, concentrate paying off CC and LoC.

Edit;
Am I reading it right? Price of the house is $40,000? Where?
Last edited by teoconca on Sep 26th, 2020 10:10 am, edited 1 time in total.
+2
Sep 26th, 2020 9:49 am
ProductGuy
Deal Addict
Jan 1, 2017
1293 posts
1134 upvotes

Sep 26th, 2020 9:49 am

Wait, what... you have been living with family and you have this much debt. When you buy a house your expenses will increase not decrease. Why not focus on paying off all your debt before buying a house. And where in Canada can you find a $40,000 house???
+2
Sep 26th, 2020 9:53 am
skeet50
Deal Addict
Jan 15, 2017
3645 posts
3007 upvotes

Sep 26th, 2020 9:53 am

You can't buy the home right now as with your current debt and income you won't qualify for traditional financing.

Even if you had little to no debt, your monthly income is really a deterrent to owning a home. Regular and common home maintenance and repair costs would have a dramatic impact on your standard of living. My suggestion is that you work toward getting out of debt and increasing your income prior to buying a home.
Sep 26th, 2020 11:13 pm
ky.antz
Member
Jan 29, 2007
274 posts
57 upvotes
Markham

Sep 26th, 2020 11:13 pm

ProductGuy wrote: ↑ Wait, what... you have been living with family and you have this much debt. When you buy a house your expenses will increase not decrease. Why not focus on paying off all your debt before buying a house. And where in Canada can you find a $40,000 house???
finally someone asking this question - i thought it was a dumb question i was just missing something.. but where tf can you find a $40k house.
Sep 27th, 2020 1:54 am
NorthBC
Newbie
Sep 1, 2020
4 posts

Sep 27th, 2020 1:54 am

ky.antz wrote: ↑ finally someone asking this question - i thought it was a dumb question i was just missing something.. but where tf can you find a $40k house.
Towns all over....less desirable cities such as Regina too.
Sep 27th, 2020 9:57 pm
dazz
Deal Fanatic
User avatar
Dec 10, 2004
6338 posts
2079 upvotes
Vancouver

Sep 27th, 2020 9:57 pm

Without repeating others, find out what balance transfer is and start using it. Get some credit cards that allow it. I get these offers every year from 0%-5%. Talk to some kind of credit counseling. Your debt to salary is inanely bad. I am not even sure how you can have any sort of quality life with $800 left while paying $700 every month. Even if you get a house, you CANNOT afford it. It needs heating, electricity, repairs and so much more. Probably car and then insurance, gas and so on.
No bank will touch you. You won't get any kind of mortgage right now with your debt and salary. Not even maybe! You cannot even afford your debt. It seems you are only paying minimum payments(interest) on your debt so it will take years. You cannot afford to live on your own no matter how much you want it. I am amazed you are even looking at buying something as you are so broke. Get rid of the debt asap and then and only then you can start looking at something. Get some help so you can consolidate your debt to a more manageable % as it seems you are paying extremely high rates. Maybe get a loan from your parents and you pay them $500/month or something.
+2
Sep 27th, 2020 11:30 pm
kenchau
Deal Fanatic
Apr 11, 2006
8589 posts
2982 upvotes
Mississauga

Sep 27th, 2020 11:30 pm

OP your situation is not at all interesting. It's a classic case of someone getting into too much debt and is in bad shape to repay it all.

Your simple ideas of, "i would then just pay off the LOC with the mortgage", etc. are probably why you have so much debt now. It's easy to say, i'll just pay it off, but it's another thing to have the wllpower to execute that...as well as having the appropriate income levels for the amount of debt and vice versa.
Sep 28th, 2020 1:51 am
WinterSleep
Deal Addict
Jan 26, 2016
1644 posts
1487 upvotes
Toronto, ON

Sep 28th, 2020 1:51 am

OP missed at least two 0's in his OP.
+1
Sep 28th, 2020 3:24 am
oilerfan89
Member
Sep 15, 2017
474 posts
444 upvotes
Saskatoon

Sep 28th, 2020 3:24 am

NorthBC wrote: ↑ Towns all over....less desirable cities such as Regina too.
unless the house was a murder house complete with a fresh body still laying there or a rat infested dump condemned you aren't getting a 40k house in Regina lol
+1
Sep 28th, 2020 12:34 pm
DudeManBro [OP]
Newbie
Sep 24, 2020
3 posts

Sep 28th, 2020 12:34 pm

There are honestly tons of houses for 20,000-40,000$ in small towns all over Saskatchewan. They are all in small, middle-of-nowhere towns, that you have to drive at least 20-40 minutes to the nearest town with a grocery store. I live in one of these towns.

The whole reason I had this idea in the first place is because a friend of mine just bought the other cheap house down the street. It was a 75,000$ house and he is paying $157 biweekly. $300/month is less than HALF the INTEREST I'm paying now ($700) on ONLY my debt. Thus came the idea of consolidating it into a low interest mortgage. My debt and the house = $75,000, and I already know what the payments are on that. ^^^
The fact that the numbers involved are so small compared to usual home prices (100k+) makes it more of a unique situation as it could be purchased a number of ways.

However, I decided to just work extra hard to finish paying off the debt first, as many have suggested. I just tried to apply for 2 different balance-transfer credit cards and both applications were declined. My only hope of defeating interest payments seemed to be balance-transfer cards, but how does it help if I can't get one?
Not sure what to do now....
Sep 28th, 2020 12:52 pm
Dynatos
Deal Addict
Oct 24, 2010
1207 posts
969 upvotes
Ottawa

Sep 28th, 2020 12:52 pm

DudeManBro wrote: ↑ However, I decided to just work extra hard to finish paying off the debt first, as many have suggested. I just tried to apply for 2 different balance-transfer credit cards and both applications were declined. My only hope of defeating interest payments seemed to be balance-transfer cards, but how does it help if I can't get one?
Not sure what to do now....
I strongly recommend speaking with a not for profit credit counselling service.

Do you have any spare change after paying your expenses and bare minimum interest on the cards? If so, that should probably be put towards paying down the debt with the highest interest rate.

I know it's easier said than done, but you'd be also well served by trying to find ways to increase your income. Assuming that's gross income, you're below the poverty line before even factoring in your debt obligations.
+1
Sep 28th, 2020 12:59 pm
DudeManBro [OP]
Newbie
Sep 24, 2020
3 posts

Sep 28th, 2020 12:59 pm

Dynatos wrote: ↑ I strongly recommend speaking with a not for profit credit counselling service.

Do you have any spare change after paying your expenses and bare minimum interest on the cards? If so, that should probably be put towards paying down the debt with the highest interest rate.

I know it's easier said than done, but you'd be also well served by trying to find ways to increase your income. Assuming that's gross income, you're below the poverty line before even factoring in your debt obligations.

Yes I usually have money left over but my biggest concern every month is trying to make sure I save enough for next months interest payment. :\
Sep 28th, 2020 1:07 pm
Dynatos
Deal Addict
Oct 24, 2010
1207 posts
969 upvotes
Ottawa

Sep 28th, 2020 1:07 pm

DudeManBro wrote: ↑ Yes I usually have money left over but my biggest concern every month is trying to make sure I save enough for next months interest payment. :\
I'm probably not the best person to give advice because I've never been in the situation you're in, but you'll never get rid of the debt until you start paying down the principal. You really need to put extra money against the debt. At what is likely ~20% interest, even a few dollars a month of extra money added to your payment can significantly reduce how long it takes to pay it off and the amount you end up paying in the end.
Sep 28th, 2020 3:00 pm
CNeufeld
Deal Guru
User avatar
Mar 23, 2008
11741 posts
8012 upvotes
Edmonton

Sep 28th, 2020 3:00 pm

DudeManBro wrote: ↑ There are honestly tons of houses for 20,000-40,000$ in small towns all over Saskatchewan. They are all in small, middle-of-nowhere towns, that you have to drive at least 20-40 minutes to the nearest town with a grocery store. I live in one of these towns.

The whole reason I had this idea in the first place is because a friend of mine just bought the other cheap house down the street. It was a 75,000$ house and he is paying $157 biweekly. $300/month is less than HALF the INTEREST I'm paying now ($700) on ONLY my debt. Thus came the idea of consolidating it into a low interest mortgage. My debt and the house = $75,000, and I already know what the payments are on that. ^^^
The fact that the numbers involved are so small compared to usual home prices (100k+) makes it more of a unique situation as it could be purchased a number of ways.

However, I decided to just work extra hard to finish paying off the debt first, as many have suggested. I just tried to apply for 2 different balance-transfer credit cards and both applications were declined. My only hope of defeating interest payments seemed to be balance-transfer cards, but how does it help if I can't get one?
Not sure what to do now....
The only way you can combine your consumer debt and mortgage together is if the total amount you're trying to finance is less than the value of the house. Likely, less than 80% of the value of the house. Lenders never want to get into a situation where they get stuck holding a mortgage that's more than they can sell the property for. They're not that stupid.

As far as leveraging the farmland you have, unless you're willing to sell the land, you'd have to speak to a mortgage broker to see. You could also see if any neighboring farmers would be willing to lease the property from you, but no idea how much extra that will bring in for you.

As you've said, your first priority has to be getting rid of your consumer debt. Work your business harder, get a second job, do what you can to increase your income. Work on minimizing your expenses. Have you talked to RBC and your credit card companies to see if there's any relief available, like a lower interest rate card or anything? Borrow money from your relatives if you can, and pay it back at a lower interest rate.
C
+1
Sep 28th, 2020 3:22 pm
Spiritwalker2222
Jr. Member
Dec 5, 2017
173 posts
127 upvotes

Sep 28th, 2020 3:22 pm

I think your best bet would be to get a new job or a second job. Your income is really low. If you worked full time at a minimum wage job you'd be pulling in a lot more money. And you could pay down your debt fast. Just imagine if you made 30K a year.

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