Not Paying Rent

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    I’ve been living with my mother after my ex maxed out my credit cards so I could pay off my debt. I have been very successful at paying that debt off because my mother only has me contribute $200 a month as rent. She is an authorized user on my bank account and just pulls the money every month. I am concerned about 3 things:

    1) Will me overpaying on my credit cards to pay them off hinder me? Example- My monthly pay for one card is $85 (I’ve been paying $300) and the other card is $190 (I’ve been paying $210). That’s $225 I don’t have to contribute to those cards to make regular payments.

    2) I also used this time to put $380 into my 401K every month. In the qualification guides, it discussed saving the difference every month between rent and mortgage. Will this count as savings? I have regular savings but prefer my 401k for long term savings.

    3) The $200 I give my mother every month she just takes out of my bank account (she’s on it as POA). Can I show the transaction history for the previous 12 months in addition to 6 the months of canceled checks going forward?


    1) No it’s not bad to overpay, the payments on the credit card debt can count as payment shock. The key is that the balances decrease the entire time. Don’t use them for anything. The debt has to keep going down and that will count. You ideally want to be as close to out of debt as possible anyway before buying your home.
    2) I would halt putting money into a 401K right now until you’re out of debt unless it’s a company match amount. Use that $380 to pay your debts off to be able to afford more house and also if the 401K isn’t gonna be used towards the purchase of the house leave it out of the process altogether. 401K accounts aren’t good past the match amount period.
    3) If possible it would be better if you just write her a check or even just contribute in $200 worth of groceries or pay a bill or something rather than explain the $200.


    Hello tgzink,

    I’m getting the sense you are trying to find ways to get through this part of the process as fast as possible, and you are probably only going to wind up frustrating yourself. Even though the additional amount on the credit card payments can be counted toward savings, the situation with the money you give your mother is going to hold you up for another six months, so you should probably re-think your strategy a bit.

    I’m going to get a little bit “Dave Ramsey-ish” here. Since you are going to be at least another six months before you can get qualified, use this time to throw every penny you can at the credit card debt. You didn’t say how much the total amount is, but pay off everything you can.

    In fact, one of Dave’s techniques would probably serve you well. Start with the account with the smallest balance and throw everything at that one until you pay it off. Make only the minimum payment on the others in the meantime. Once the first one is paid off, go to the next smallest balance and throw everything at that one, and so on. It’s not only helps keep you motivated by seeing those bills disappear one at a time, but you’ll have fewer accounts to deal with at your first counseling appointment, which will help to simplify your budget calculations.

    The full amount of your 401 k contribution (not any matching funds) can be counted toward Payment Shock. However, you should think very seriously before doing so. By counting your 401k toward Payment Shock, you are promising to terminate your 401 K contributions the moment you close on your home since those funds are now committed to your monthly mortgage payment for the next 15 or 30 years. You need to give serious consideration to the advantages or disadvantages of no longer saving for retirement before having your contributions counted toward your Payment Shock.

    Most 401K’s will allow a one time withdrawal from the account for the purchase of a home, and that could be used toward your Minimum Required Funds without interrupting your contributions. You should talk with your 401K administrator about your options.

    I’m afraid the transaction history will not be acceptable, especially since your mother is an authorized user and is withdrawing the money herself. She could be taking the money out for any purpose, and there is no way by which you can prove where the money is going and for what purpose.

    You need draft a written agreement (i.e., a lease) with her and pay her by check without fail every month, which is what is going to keep you from qualifying for another six months. Since that is the case, use the time to your best advantage and clear up everything you can during that time.

    Tim Trumble
    Online Operations, NACA

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