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Comment by toomuchtodo | Hacker News Reader

Bankruptcy is not as bad as everyone makes it out to be. You can get an FHA mortgage 1-2 years (depending on circumstances) after the discharge date. You can get a non-QM (not Fannie/Freddie/FHA backed) loan the next day at a higher interest rate (~200-300 basis points above prime), which you're only going to carry for two years until you can FHA refi. You'll get a secured credit card. You'll pay more for an auto loan. But you'll get credit nevertheless because you can't go BK again for another 7 years. You will pay more for that credit, but you will still get it. Walking away from certain levels of dischargeable debt is entirely reasonable. That is why we have bankruptcy as a financial tool.

Some states are better about protections against creditors than others. Don't live in a state with poor creditor protections (Florida is fantastic, Missouri is terrible).

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200-300 basis-points means 2-3% (for the non-finance types).

So your 6% loan is now a 9% loan.

Prime mortgages hover around ~3-4.5% currently. Non-QM is ~5.5-8 percent, looking at a non-QM lender's rate sheet right now (dependent on loan to value, assets, and income). So about what you'd pay for a HELOC or higher rate home equity loan. Even with garbage credit you're not paying 9% on a property that you've got some equity in, but you're not getting a mortgage with only 3% down (nor should you; go rent for a year or two with a landlord who will report positive payment activity to CRAs and then go get your federally backed FHA loan with only 3% down).

I was just using 6 & 9 as example values from the ether (maybe Hendrix) - not in reference to any specific loan type.

And yes, Prime is low today.

Also, if you can make a play for real property: buy dirt. It's a good financial play to build equity/wealth.

An 18 year old isn't getting a mortgage. They probably won't be able to afford a home for the next 7 years anyway. They might have a rough time getting a reasonable car loan and opt to instead buy a used car with cash, but that isn't the end of the world.

Making a high risk play and maybe going bankrupt at 18 might even be a dominant strategy.

I never used credit from 18-25 aside from churning some credit cards.

It sounds to me like this is the dominant strategy for many people who dont use the traditional credit system much and are young and have no assets. You get a 1 in 20 chance of a million dollars and in 19 of 20 cases you go bankrupt. Seems like a extremely +EV deal.

Not only not the end of the world, it’s a much more sound financial move :-).

This is a one-dimensional way of looking at things. I have a high credit score, never had a late payment in my life, but couldn't get a mortgage for any amount because I'm working for a temp agency.

Do you not have 2 years of W2 or 1099 income? With either, an FHA loan should be no problem, or even a Fannie or Freddie backed loan with mortgage insurance baked into the interest rate.

Income and assets are king when underwriting a mortgage, credit less so (depending on investor desires of the mortgage backed securities).

https://www.hud.gov/sites/documents/4155-1_4_SECD.PDF (FHA Guidelines: Borrower Employment and Employment Related Income)

Well, let's put it this way - I have less than 2 years of lack of W-2 income. But yeah, you are reiterating my point, that credit score isn't necessarily what everything is based on. And what I was also thinking, is that I would not charge into bankruptcy assuming I knew what the consequences are. Everybody says you can get credit right afterwards, but I think "yeah, and that means they think you're a good risk for some reason other than your personal habits of paying debts, which sounds ominous".

Meaning what? They're gonna break your shins?

don't forget prosper and lending club. although non-QM loans generally require 20-30% down.

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