Question: Recently, I have gotten into big trouble with my credit cards. I am currently working with credit counseling to negotiate lower terms for all six of them. Many have already been handed over to collection agencies as they are 6 months past due. Not that it matters, but I “had” a gambling problem. My question is this:

I want to sell my condominium in about 1 year and buy another less expensive condo in another part of town. My current mortgage is $150,000 at 6.8% and I pay it on time. The new mortgage will hopefully be about $25,000 less. How difficult will it be for me to qualify for another mortgage because of my tarnished credit report? I hope to profit about $50,000 from the sale and use the proceeds to pay down my debt, credit cards included. Next, if I don’t qualify on my own would a co-signer help the situation any? Thanks, so much!

Answer: Okay, I’ve got the terminology but I’m still puzzled as to why someone with a large downpayment (or anyone, for that matter) would choose a higher interest rate just to avoid completing some paperwork. But if you’re suggsting that the documentation is skipped in order to cover up low income or bad credit, then I’m still puzzled. Are you saying there’s some kind of “don’t ask, don’t tell” category and if so, to what type of borrower would this be advantageous? I’ve owned a number of properties in my lifetime, including primary residences, a vacation home, and rental property so I’m familiar with the process. Both recent mortgages DH and I’ve had were sold to another institution within a matter of days, although one was arranged through a bank (ponderous process) and the other through a broker–a “one call, that’s all” thing that sounds rather like the low-doc mortgage you mentioned, except that the interest rate was the lowest one being advertised at the time for a conventional, 30-year mortgage. DH and I’ve sold a couple pieces of property on land contracts and they weren’t particularly problem properties as far as I could tell. In one case we knew the buyers personally, in the other we didn’t, but from our perspective the higher interest rate this kind of sale produced was sufficient to satisfy us in terms of the risk.

You sound as if you’re in the lending business and know whereof you speak, although a lot of what you said–about types of mortgages, interest rates, and seller financing–sounds directly contrary to my own experience. Perhaps practices differ in different parts of the country.

FWIW, on our current mortgage we did have a large down payment–approximately 40%. Maybe that made a difference in procedure and/or interest rate.

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