Good credit, bad loans – Apr. 28, 2008
by Tom on April 28, 2008
in Uncategorized
Good credit, bad loans – Apr. 28, 2008
Another story about a borrower who:
1. Didn’t understand the loan they were getting.
2. Couldn’t really afford the house they bought.
3. Felt pressure from “people” (Realtor? Lender?) to get this type of loan.
She was able to make it through, many aren’t so lucky.
If you don’t understand the loan terms, or you feel that someone is pressuring you, you need to back off, take a second look at things and make sure that you’re doing the right thing.
Here’s my frustration. I’ve got pretty good credit (above 700) and my mortgage lender told me anything up to and around 300K would be within my ratios. This is my first home purchase.
Because I’m cautious, I’m bidding on an REO at $230K, to ensure I can always make the payments. There are three bids on the property, so to prove my seriousness, I put down a $10K deposit and offered 20% as a DP as part of my bid.
I can come up with 10% but, since I’d like to have a small reserve for emergencies, I’d like to take a friend up on their offer of a loan (30 years, 5.75%, no name of the deed — an unsecured personal loan) for the other 10%. My total indebtedness — to either the bank or my friends — would be about $210K — way less than I could borrow, so I thought there would be no problem.
I’m told by some outside mortgage folks, however, that my bank will never give me a mortgage if there’s a secondary personal loan, even if it’s unsecured and even if half the downpayment is mine. So I either fudge the paperwork (claim the loan is a gift, then side a note post-close) or I lose my shot at the house I’m after, since the 20% was part of the bid.
Under this thinking, the bank would be OK with a 97% position on a $300K house, but wouldn’t be OK with an 80% position on a $230K house because an unsecured personal loan was half the DP.
This is crazy. Since I’m in a distressed area, a downpayment has to be either in the 3% range with an FHA or 20% for a conventional. So the system is encouraging me to get way more house than I need and have a far smaller stake in it, rather than allow someone to assist me with the DP.
And people wonder how the trouble starts? I’m doing my best to be conservative and responsible, but the system is pushing me the other way. Why?
Dear Anonymous,
Thanks for writing. I agree with your frustration, many things about the mortgage world don’t make sense. For years, the mortgage world won’t allow you to use “unsecured” borrowed funds as part of your downpayment.
I don’t know where you are located, but I’d like to talk to you. I’ve got some ideas that I believe could work very well for what you’re trying to accomplish. I can do mortgages in 33 of the 50 states.
You can reach me at either (616) 292-7559 or e-mail me directly at straighttalkaboutmortgages@gmail.com or thomas.vanderwell@53.com.
Hope to hear from you soon.
Tom