Posted on: 12th Aug, 2008 11:21 am
Hello...I'm looking to see if anyone can explain this to me.
Mark just had his first home put on a lease-to-own contract with a family because they don't currently meet creditworthiness for a loan. The lease is for 12 months at which point they will be reviewed. 10 of the 12 months will go toward a down payment on that lease. His monther is a non-occupying co-signer on an FHA loan for this home because of his mid-level income. He makes mid-thirties per year, and his credit score is high 700's, although there is other income in the form of investments. His mother makes closer to sixty-k/yr and has a credit score in the mid-800's.
IN the meantime, he is trying to buy a home at $221k. Another FHA loan was drawn up in the same manner as the first home (mother as non-occupying co-signer). Everything was fine until the broker tried to re-fi the 1st loan to a conventional. It seems that different brokers have unsuccessfully tried this situation and failed.
I understand his income is not that high....but he's got excellent credit, pays his bills, his first home is essentially being paid for thru the rentors/lessors until they can buy it. He will have an additional mid-fifties in income coming into the house, but the person who's income that is does not have good credit and will not be on the loan.
He's been told everything from "We can't do it" to "You HAVE to have 20% down to get a loan." He can get 5-10%, but not 20% of $221k!
Can someone tell me why someone who does pay their bills, has excellent employment and credit history, and does actually have means to pay for this not be able to get a loan?
Thank you for reading this novel.
Thank you.
Mark just had his first home put on a lease-to-own contract with a family because they don't currently meet creditworthiness for a loan. The lease is for 12 months at which point they will be reviewed. 10 of the 12 months will go toward a down payment on that lease. His monther is a non-occupying co-signer on an FHA loan for this home because of his mid-level income. He makes mid-thirties per year, and his credit score is high 700's, although there is other income in the form of investments. His mother makes closer to sixty-k/yr and has a credit score in the mid-800's.
IN the meantime, he is trying to buy a home at $221k. Another FHA loan was drawn up in the same manner as the first home (mother as non-occupying co-signer). Everything was fine until the broker tried to re-fi the 1st loan to a conventional. It seems that different brokers have unsuccessfully tried this situation and failed.
I understand his income is not that high....but he's got excellent credit, pays his bills, his first home is essentially being paid for thru the rentors/lessors until they can buy it. He will have an additional mid-fifties in income coming into the house, but the person who's income that is does not have good credit and will not be on the loan.
He's been told everything from "We can't do it" to "You HAVE to have 20% down to get a loan." He can get 5-10%, but not 20% of $221k!
Can someone tell me why someone who does pay their bills, has excellent employment and credit history, and does actually have means to pay for this not be able to get a loan?
Thank you for reading this novel.
Thank you.
I understand and appreciate your questions. It will be hard to speculate without specific credit and income details. But a general answer is that you need to think like an underwriter: only verifiable income of the borrowers who will be on the loan can be used. It doesn't suffice (using FHA or Fannie Mae underwriting guidelines) that someone "always pays their bills." Income has to be verifiable with W-2's or tax documents, employmment verified, income from investments must be a consistent stream and be verifiable over a period of time to be considered. Debt-to-income ratios must be in compliance, with all liabilities of all parties on the loan included in the debt ratio- including the non-occupying co-borrower's debts. At least part of the first house payment will still be included in the debt ratios (the rent being paid is only partially counted , usually at 75%- allowing for a vacancy factor).
Sounds like refinancing the first house after it has become an investment property is the problem. Since it is no longer a primary residence, a higher interest rate, lower debt-to-income ratios and lower maximum loan-to-value rules will apply - this is now an investment property and lenders consider them riskier loans.
These are just some thoughts based on general underwriting guidelines- someone else may want to weigh in with some additional ideas.
Also, you can't have more than one FHA loan at a time, so I assume that is why they are trying to refi the 1st house?
Sounds like refinancing the first house after it has become an investment property is the problem. Since it is no longer a primary residence, a higher interest rate, lower debt-to-income ratios and lower maximum loan-to-value rules will apply - this is now an investment property and lenders consider them riskier loans.
These are just some thoughts based on general underwriting guidelines- someone else may want to weigh in with some additional ideas.
Also, you can't have more than one FHA loan at a time, so I assume that is why they are trying to refi the 1st house?
hi bailey,
that's pretty good analysis.
to berettamistress:
it's not just that one can qualify for a loan simply on the basis of the fact that he earns well, pays all bills in time and has a good credit record. his liabilities and debt payments often play a big role and the latter gets reflected in the debt-to-income ratio.
there's a chance that perhaps mark may have a high debt to income ratio compared to what the brokers are actually looking for. and i don't understand this, why did the broker refinance the first loan and was mark really willing to do it? how does the down payment figure in a refinance? i think mark is trying to get a loan for the new loan? or perhaps what you're trying to say is, the broker was willing to offer a loan but right after the first loan was refinanced, things became difficult. a refinance loan means a new loan and the borrower has to start afresh with a new payment plan. i think may be this is one of the reasons why the loan is being repeatedly denied. but mark shouldn't stop shopping. what's his debt to income ratio by the way?
good luck
that's pretty good analysis.
to berettamistress:
it's not just that one can qualify for a loan simply on the basis of the fact that he earns well, pays all bills in time and has a good credit record. his liabilities and debt payments often play a big role and the latter gets reflected in the debt-to-income ratio.
there's a chance that perhaps mark may have a high debt to income ratio compared to what the brokers are actually looking for. and i don't understand this, why did the broker refinance the first loan and was mark really willing to do it? how does the down payment figure in a refinance? i think mark is trying to get a loan for the new loan? or perhaps what you're trying to say is, the broker was willing to offer a loan but right after the first loan was refinanced, things became difficult. a refinance loan means a new loan and the borrower has to start afresh with a new payment plan. i think may be this is one of the reasons why the loan is being repeatedly denied. but mark shouldn't stop shopping. what's his debt to income ratio by the way?
good luck
OK, I"ll try to answer these as best as possible.
He does have verifiable income (W-2's, a steady job for 6 yrs), and currently, his mother is a non-occupying co-signer on his 1st home (the one that's lease to own.)
Bailey, you're right, you can't have more than 1 FHA at a time, hence the re-fi on the 1st home.
He owes $144k on the first home, $13k on a truck payment. Understandably, his income is $36k/yr not including (and understabably, these are not always available, therefore, don't count as "income") the investment income. I'm guessing his debt-to-income isn't great. However, his mother/step-dad owe $10k on their house and $35k on a boat. That's it. Literally. They are both employed full-time (the step-dad is only involved because this state requires spousal signature). Their mean FICA is 825. So with these people....I'm not sure what the problem is.
Also, someone did mention in passing "investment property" because he doesn't live there. Also, with the new loan, it's also being considered a second property because there are more than three investors???? That seemed unlikely to me, but I'm not a broker, so I have not idea about the rules!
Caron, the first loan needed to be re-fied because the second loan (for the new house) is FHA, since that's the only loan Mark qualifies for with his mother as a non-occupant co-signer.
As far as a down payment, Mark can get 5-10% of the $221k for the new loan if needed.
So, I hope I answered the questions, thanks for your explanations....it just seems that with the people involved, the debt-to-income ratio wouldn't be an issue except for the 1st home, where perhaps Mark doesn't qualify for a conventional loan on his own with his income vs. debt? It's $36k income/yr with a 777 FICA vs. $144k mortage and a $13k truck loan.
Thank you!!
He does have verifiable income (W-2's, a steady job for 6 yrs), and currently, his mother is a non-occupying co-signer on his 1st home (the one that's lease to own.)
Bailey, you're right, you can't have more than 1 FHA at a time, hence the re-fi on the 1st home.
He owes $144k on the first home, $13k on a truck payment. Understandably, his income is $36k/yr not including (and understabably, these are not always available, therefore, don't count as "income") the investment income. I'm guessing his debt-to-income isn't great. However, his mother/step-dad owe $10k on their house and $35k on a boat. That's it. Literally. They are both employed full-time (the step-dad is only involved because this state requires spousal signature). Their mean FICA is 825. So with these people....I'm not sure what the problem is.
Also, someone did mention in passing "investment property" because he doesn't live there. Also, with the new loan, it's also being considered a second property because there are more than three investors???? That seemed unlikely to me, but I'm not a broker, so I have not idea about the rules!
Caron, the first loan needed to be re-fied because the second loan (for the new house) is FHA, since that's the only loan Mark qualifies for with his mother as a non-occupant co-signer.
As far as a down payment, Mark can get 5-10% of the $221k for the new loan if needed.
So, I hope I answered the questions, thanks for your explanations....it just seems that with the people involved, the debt-to-income ratio wouldn't be an issue except for the 1st home, where perhaps Mark doesn't qualify for a conventional loan on his own with his income vs. debt? It's $36k income/yr with a 777 FICA vs. $144k mortage and a $13k truck loan.
Thank you!!
one more question (this pertains to the refinancing of the first house), what is the approximate market value of that property? i believe you said he would need a $144,000 loan ... but knowing what the property would appraise for is important...many lenders wont go higher than 80% maximum loan-to-value when refinancing investment properties.
i hope it works out for them, and that the family leasing the first house can get qualified soon so they can get their own mortgage!
another idea: perhaps mom, the co-borrower on the first house, could refinance that property out of mark's name? (he would have to sign a quit claim deed also, i assume) ...then he could be free to apply for a new fha loan on the new house.
i hope it works out for them, and that the family leasing the first house can get qualified soon so they can get their own mortgage!
another idea: perhaps mom, the co-borrower on the first house, could refinance that property out of mark's name? (he would have to sign a quit claim deed also, i assume) ...then he could be free to apply for a new fha loan on the new house.
That's actually not a bad idea, Bailey (His mom re-fiying mark out). Never thought of it.
At any rate, the value on the first home is $164000. It was appraised in Dec 2007 because of the re-fi in Feb.
I hope that family qualifies too. If the home was sold outright...this whole thing would be a non-issue! :)
Thanks!
At any rate, the value on the first home is $164000. It was appraised in Dec 2007 because of the re-fi in Feb.
I hope that family qualifies too. If the home was sold outright...this whole thing would be a non-issue! :)
Thanks!
with a $164,000 appaised value, the maximum mortgage amount on a rate term refi for investment property may be $131,000 or so (80% LTV) ...so mom would likely have to bring in some cash in order to do the refinance. but it may work!
Thanks Bailey!
It's not optimum, but it may be the only course of action. It'll just be easier for him when that house sells....
Thanks for all the advice....if anyone else has any, I'll take it to him!
It's not optimum, but it may be the only course of action. It'll just be easier for him when that house sells....
Thanks for all the advice....if anyone else has any, I'll take it to him!